Bush unveils $1.52 trillion budget plan Proposals could pit U.S. recovery, deficit


WASHINGTON -- President Bush sent Congress a $1.52 trillion election-year budget yesterday showing a ballooning deficit that may reach nearly $400 billion this year -- a record -- and could easily match that total in fiscal 1993.

The package indicates that the administration taking office next January will face the prospect of steep spending cuts and tax increases to narrow the deficit, or a continued high level of federal borrowing that will cause interest rates to rise and block a firm economic recovery.

The surprising climb in the deficit -- from $268.7 billion in fiscal 1991 -- means that the red ink now averages about $1,600 for each of the nation's 250 million people.

As a result of the prolonged recession, tax revenues are barely expected to rise in discal 1993, to $1.16 trillion, and the government must borrow $352 billion to cover its expenses, according to the budget documents.

But most of the president's proposed spending cuts, long rejected or ignored by Congress, are expected to fail again this year. That would raise the deficit and borrowing closer to $400 billion in the 1993 fiscal year, which starts Oct. 1.

His array of proposed tax cuts, partly designed to end the recession, would add to the deficit while his proposed freeze on discretionary spending would barely make a dent in it.

The president proposed to hold the line on programs dealing withchild abuse, runaway youths and the mentally retarded and to cut payments covering heating bills of the poor.

In a brief message at the beginning of his 2,000-page budget, the president called on lawmakers to "lay aside partisanship and join with me in enacting this growth agenda promptly."

Visiting Capitol Hill to campaign for his budget, Mr. Bush defended the deadline of March 20 he set for Congress to act on the economic package. He argued that without a tight timing goal, "we can drift" away from this thorny issue.

But while Senate Majority Leader George J. Mitchell, D-Maine, agreed to act "as promptly as possible," he said the deadline "has no meaning in terms of what and how we act."

Hemmed in by his steep slide in the polls and by a mammoth and still-growing deficit, Mr. Bush offered only a modest package of tax breaks and spending cuts. Domestic spending cuts were heavily concentrated in Medicare, the health program for the elderly, and included a proposal to limit benefits for people with high incomes.

While the president proposed $50 billion in defense cuts over five years in his State of the Union address, the budget documents show that the so-called "peace dividend" would amount to only $27.4 billion in actual spending. The $50 billion refers to money that Congress authorizes for long-term defense programs, but that would not necessarily be spent in that five-year period.

Despite pleas by Democrats to divert considerably more military funds to domestic spending, including education and road repair, the president made only a single exception to plans to use military cuts for deficit reduction. He said he would allow most of the $27.4 billion in defense cuts to be earmarked to cover a proposed $500 increase in the personal tax exemption allowed for each dependent child.

But congressional Democratic leaders have been calling for defense cuts far higher than those sought by the president, and a protracted battle is expected over budget priorities.

Although the president vowed in his State of the Union message to hold the line on military cuts and priorities, Defense Secretary Dick Cheney said at a briefing yesterday that it would be "foolish to think that's realistic."

The budget authorizes total defense spending of $280.9 billion -- a $10 billion cut from what was planned for fiscal 1993 -- and would end production of the B-2 bomber, the Seawolf submarine and the nuclear warhead for the submarine-launched ballistic missile.

Emphasis in the new defense budget would be more on research and testing, less on production.

Aside from the possible diversion of military funds to pay for the personal exemption increase, the budget documents emphasize that the president continues to honor the spending ceilings adopted by Congress in 1990 to reduce the deficit.

Most of the explosion in the deficit comes from a sharp falloff in revenue and more spending on welfare, food stamps, unemployment insurance and other recession-related programs, as well as a steady climb in the costs of entitlement programs like Medicare and Medicaid, the health program for the poor.

In addition, the deficit rose $15 billion this year because of the president's decision, announced Tuesday night, to change the tax withholding rates by March 1 so that about a dollar less is taken from the average weekly paycheck this year. An individual's total tax bill -- what he or she owes at the end of the year -- will not change.

Within the limits approved by Congress, the president seeks to shift spending to needs he foresees as critical if the nation is to compete globally.

Economists have attributed the nation's unexpectedly long recessionto low capital investment and to educational shortcomings.

As one of his top priorities, the president sought a $600 million increase to $2.8 billion in the Head Start preschool program, which now serves 621,000 children from low-income families. It is the largest single increase since the program began in 1965, although its congressional supporters contend that the amount is less than is needed to guarantee access for all those eligible.

Along the same line, the president proposed increasing federal Pell grants to college students from low- and middle-income families by $1.2 billion to $6.6 billion. Maximum awards would be raised from $2,400 to $3,700.

The president also proposed consolidating federal job-training efforts so that access would be easier for disadvantaged workers seeking employment and new skills.

To encourage capital investments, the president pressed once again for a cut in the capital gains tax paid on profits from the sale of stocks, bonds and other investments. The budget estimates that this tax break would raise $6.9 billion over five years as people sell assets to take advantage of the proposed rate of 15.4 percent, down from the current 28 percent.

But the congressional tax experts contend that this tax relief would add to the deficit, and Democratic leaders oppose it on grounds that it favors the wealthy.

Under pressure from House Republicans, the president withheld the last minute his proposal to revamp the nation's health care system. It is scheduled to be issued within two weeks.

But the budget calls for spending another $565 million, a 13 percent rise to $4.9 billion, for research and treatment efforts to combat acquired immune deficiency syndrome. It also seeks to spend $66 million to fight the recent epidemic of tuberculosis.

Other budget highlights include:

* A 9 percent rise, to $2.2 billion, to operate the federal prisons, including space for 4,640 more prisoners.

* An increase of 6 percent, to $9.4 billion, to operate the nation's air safety system, including $2.7 billion for modernizing air traffic control.

* A rise of 10.6 percent in the Justice Department budget to $10.4 billion, partly to allow the FBI to deploy 2,000 agents to investigate violent criminals.

The president also revived his controversial proposal, rejected last week by the Senate, to give low- and middle-income parents up to $1,000 per child to help pay the costs of going to public or private schools of their choice.

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