Bush declares 'new era' with 1992 budget $1.45 trillion plan maps record deficit of $318 billion


WASHINGTON -- Calling for a "new era of expansion" following the recession, President Bush sent a $1.45 trillion budget to Congress yesterday that proposed fresh efforts to shore up the nation's education system, combat costly illnesses, develop advanced technologies, expand space exploration and improve the nation's highways.

"The budget places special priority on policies that will enhance America's potential for long-term economic growth and that will give individuals the power to take advantage of the opportunity America uniquely offers," the president said in his budget message.

But to carry out this lofty goal, Mr. Bush was able to muster only scant resources because of huge budget deficits and because of strict limits on spending imposed by last fall's deficit-reduction agreement with Congress.

The 1992 budget for the fiscal year that starts Oct. 1 projects a record deficit of $318 billion in the current fiscal year and a deficit of $280 billion in 1992.

But the president looked ahead to a projected budget surplus of $19.9 billion in 1996, reflecting an expected end to the current recession by mid-1991 and a recovery of the ailing savings and loan and banking industries. Their troubles added $111.5 billion to this year's deficit, from deposit insurance costs.

In an attempt to change budget priorities, the president proposed scaling back health and other programs enjoyed by upper-income groups and earmarking more funds for the poor, especially in health and education.

The budget would require people with incomes above $125,000 to pay three-fourths instead of one-fourth of the cost of doctors in the non-hospital portion of Medicare, reducing the average annual subsidy to $1,690 from $2,445.

The proposal also would deny to people with $125,000 in income a major part of the farm subsidy program; would rechannel some college aid from middle- and upper-income families to poor students; and would add to the costs of federally subsidized school lunches for pupils who are well above the poverty line.

The president said his budget was aimed at increasing "fairness in the distribution of benefits."

Budget Director Richard G. Darman told a news briefing that the added burden on upper-income groups would be "relatively modest" in 1992, but he emphasized that the shift was aimed at "getting a toehold" toward redirecting considerably more federal funds in the future.

These cutbacks would be part of a proposed $46.6 billion in reductions over five years in so-called "entitlement" programs -- programs that guarantee benefits to those eligible.

Of that total, Medicare, the health program for the elderly, would be reduced by $25.3 billion over five years, mostly in payments to hospitals and doctors.

Congress, which agreed to reduce Medicare by $32 billion in last fall's deficit-cutting agreement, is certain to resist these added reductions.

House Budget Committee Chairman Leon E. Panetta, D-Calif., said the president "is emphasizing the wrong priorities" in cutting Medicare and other domestic programs and expanding spending on space, technology and science programs.

"There's going to be a big debate between Democrats and Republicans as to what these priorities ought to be," he said.

But Mr. Darman said in his budget introduction that "no serious effort" can be made to cut the deficit without dealing with spending on the guaranteed programs, like Medicare.

To pay for the new spending, the president's budget would eliminate 238 mostly small government programs, including federal support for cleaning up asbestos contamination in schools. Spending on an additional 109 programs would be curtailed.

Those savings would amount to an estimated $12.9 billion in 1992.

On one of the biggest budget items, military spending, the president proposed outlays of $295.2 billion in the coming fiscal year, down from $298.9 billion in the current year, to conform to the deficit-reduction deal with Congress.

But the military spending surely will rise when the full cost of the Persian Gulf war becomes known and a supplemental budget is sent to Capitol Hill.

The 2,029-page budget document released yesterday contains what President Bush called a "placeholder" of $15 billion for the war, which the government estimates will cost $28 billion to $86 billion if it lasts six months.

Foreign governments have committed themselves to $51 billion in contributions, if needed, Mr. Darman said, which would help offset a large part of the U.S. cost. But House Speaker Thomas S. Foley, D-Wash., questioned whether the allies would come forward with that large of a contribution.

With the budget based on a recession ending by the summer, the president offered no anti-recession spending programs.

Should the recession be prolonged and deeper than the administration expects, about $40 billion would be added to the 1992 deficit, raising it to $320 billion because of a drop in tax revenue and more spending on social programs.

The budget was based on a substantial upturn in the economy in 1992, a presidential election year.

The administration blamed the recession and the escalating budget deficit on the gulf war, which has caused consumer confidence to plummet.

"The longest peacetime expansion was interrupted by the oil shock following Iraq's invasion of Kuwait," Michael Boskin, President Bush's chief economic adviser, said during a briefing on the budget.

The budget calls for spending $1.446 trillion in 1992, a 2.6 percent increase over the current year but

less than the projected inflation rate of 4.3 percent. Revenues are projected to total $1.165 trillion, with the shortfall reaching $280.9 billion.

Other highlights of the budget, wrapped in a 7-pound, one-volume document with a red, white and blue cover, include:

* Increased spending on the space program. Funding would go up by $1.2 billion, to $14.7 billion, including $175 million to start designing a new family of heavy-lift rockets, estimated eventually to cost $10 billion.

* A renewed request to cut the capital gains tax and to allow most Americans to earn tax-free interest on long-term savings accounts. The president also recommended that first-time home buyers be allowed to tap their Individual Retirement Accounts for down payments without being assessed penalties for early withdrawals.

* More spending on education and job training. Funds for these areas would increase by $3.58 billion, to $19.58 billion, including supplementary awards for academic achievement under the Pell college grants program.

* Creation of a $300 million program to provide students with vouchers so they can choose which school to attend. Also, $40 million would be given to schools to improve math and science programs and $359 million to train teachers in those subjects.

* Increased spending on preventive health care. Programs from child immunization to physical fitness programs, family planning, lead poisoning and infant mortality prevention would receive $1.9 billion, a $20 million increase over this year.

* More federal spending on the nation's highways. The amount would increase to $16 billion, from $14.6 billion this year, with funds targeted for a new National Highway System of roads most used for interstate travel. However, states would be required to shoulder a larger share of additions to the system.

* An emphasis on technology. The budget provides $638 million for research and development of high-performance computers. Mr. Bush also proposed spending $1.5 billion next year on nuclear physics.

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