Bush's new budget abounds with limits Even so, 1992 deficit could hit $281 billion


WASHINGTON -- President Bush will send to Capitol Hill tomorrow a $1.4 trillion budget that comes under stringent new spending controls severely limiting any new policy initiatives, administration and congressional officials said yesterday.

Despite these restraints on outlays, the president will be projecting a deficit of $281 billion for the 1992 fiscal year starting Oct. 1, the second-largest on record.

This expected deficit will be exceeded only by a likely deficit this year of $318 billion.

Both reflect the recession, which lowers revenues and raises outlays for social programs. The projected 1991 deficit is $97 billion larger than the previous record deficit of $221 billion in 1986.

The new budget proposes $23 billion in reduced spending over the next five years in Medicare payments to doctors and hospitals, with about $3 billion of the total cut in the coming year.

The proposed cuts would come on top of $32 billion in proposed Medicare cuts over five years that Congress adopted three months ago. A large part of the recommended Medicare savings in the new budget would come from hospital internship programs, an idea Congress has rejected in the past.

All told, the president is to propose about $50 billion in spending cuts stretched out over the next five years in programs that extend beyond Medicare to farm subsidies, student aid and child nutrition.

Budget officials said that part of the savings would come in curtailed benefits to upper-income groups in several programs.

Some savings would be gained from running the programs more efficiently, they said.

The budget would eliminate about 200 small federal programs and facilities, including many small post offices.

Ironically, while war rages in the Persian Gulf, Mr. Bush will be seeking a cut in military spending to $295.2 billion next year, down from $298.9 billion in 1991.

But this request will be raised substantially when the president asks Congress to pay for the U.S. share of Operation Desert Storm, the cost of which is being shared by allied governments.

Tomorrow's budget omits funding for the war.

The Congressional Budget Office estimates that the cost of the war will range from $28 billion to $86 billion, depending on its length and the extent to which military stockpiles are replenished. The administration estimates that the war may cost $45 billion if it lasts three months.

Both defense and domestic spending are being held in check in the new budget by tough guidelines adopted last fall as a central part of the White House-congressional agreement to reduce the deficit by almost $500 billion over the next five years by spending cuts and tax increases.

The total spending for the coming fiscal year will be up only 2.6 percent, considerably less than the expected inflation rate of about 4 percent.

The new rules impose a cap on overall domestic as well as military spending and bar shifting funds from the military budget to the domestic budget, a move frequently made in the past by congressional Democrats.

Should Congress want to expand spending in a domestic area such as education or health care, funds would have to be cut in other domestic programs.

In so-called entitlement programs, such as Social Security and Medicare, which guarantee benefits to eligible people, any benefit increase must be paid for with higher taxes.

Should the ceilings be breached, automatic spending cuts would be made in military and domestic programs.

"This is really the flexible freeze [on spending] that Bush talked about in the 1988 campaign," said Stanley Collender, a budget analyst at the accounting firm of Price Waterhouse.

In recognizing the new restraints in his State of the Union message, Mr. Bush said that "future spending debates will mean a battle of ideas, not a bidding war."

With the limited fresh resources available, the president is proposing in his new budget $11.7 billion in higher spending to combat illegal drugs, mostly for law enforcement efforts against dealers.

That amounts to an 11 percent increase over the $10.5 billion being spent this year, or more than twice the rate of inflation.

To encourage energy conservation, Mr. Bush also intends to askCongress for $3.3 billion in additional funds for mass transit, about a $60 million increase.

This proposed increase would fall short of keeping up with inflation, but over the past decade both the Reagan and Bush administrations had sought cuts in federal subsidies for local mass transit systems.

The new budget would also provide $171 million to finance an expanded federal role in combating infant mortality in urban areas, which have some of the nation's worst rates of infant deaths.

Some of these funds will amount to new spending, and some will be diverted from the Public Health Service.

The president will also seek $200 billion in new spending to test a newvoucher system allowing parents to enroll their children in public or private schools of their choice.

This program would mark the first time the federal government would become involved in promoting school choice, a idea strongly opposed by many educators on the grounds that it would undermine support for public schools.

Limited new funds will be sought to encourage tenant control and ownership of public housing. But cuts will be proposed in building new public housing.

In addition, the president will seek an extension of the research and development tax credit, scheduled to expire Dec. 31, and a tax benefit to encourage businesses to invest in inner cities.

Last year's proposals to provide tax break on family savings will also be renewed.

As announced in his State of the Union message, Mr. Bush will recommend to Congress that about $15 billion in separate federal programs from health and education to transportation be bundled as a single, federally funded grant to states.

The president argued that this transfer would allow the programs to be operated more efficiently at the state level, but state officials have expressed concern that the move would lead ultimately to federal spending cuts.

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