Does Social Security Really Face an $11 Trillion Deficit?

January 21st 2005 - Bush and Cheney say yes. But actuaries say the figure is "likely to mislead" the public on the system's true financial state.

President Bush and Vice President Cheney have told audiences that Social Security faces an $11 trillion shortfall if nothing is done to fix the current system. But they fail to mention that this is over the course of the “infinite future." Over the next 75 years -- still practically a lifetime -- the shortfall is projected to be $3.7 trillion.

The "infinite" projection is one that the American Academy of Actuaries says is likely to mislead the public into thinking the system "is in far worse financial condition than is actually indicated," and therefore should not be used to explain the long-term outlook.

In a roundtable conversation on January 11, the president said the Social Security system “is going to be short the difference between obligations and money coming in, by about $11 trillion, unless we act.”

Vice President Cheney echoed this claim in a January 13 speech at Catholic University when he said, “Again, the projected shortfall in Social Security exceeds $10 trillion.”

Both are correct -- but fail to mention that nearly two-thirds of that colossal bill doesn't come due until after the year 2078.

The Trustees Report

The projection comes from the 2004 Social Security Trustees report which estimates that the system’s unfunded obligations are $10.4 trillion over the course of what they call the "infinite horizon." Historically, the infinite-horizon projection has not been included in the annual report, and was only added in 2003.

Previously the Trustees had used only a 75-year projection to estimate the system’s long-term deficits, roughly the length of a human lifetime. (Average life expectancy at birth has now increased to just over 77 years, up from just under 75 years as recently as the 1980's, according to the National Center for Health Statistics.) The Social Security Trustees' 2004 projection shows a $3.7 trillion shortfall over this 75-year period.

The Trustees reasoned that the 75-year window should be extended to the infinite future to give policymakers a better idea of the changes necessary to keep the system sustainable indefinitely -- especially beyond 2078 when they said Social Security’s deficit will be increasing even faster than during the next 75 years.

A technical panel set up to advise the Social Security Administration later said that infinite-horizon model is useful but “it is difficult to understand." The panel recommended that the infinite-horizon calculations be expressed more prominently as a percentage of the taxable payroll rather than the actual dollar amount. Referring to the 2003 trustees report, the panel said:

Technical Panel on Assumptions and Methods: The Report also briefly mentions the infinite horizon actuarial deficit of 3.8 percent. This figure is more informative that the dollar value of the infinite horizon unfunded obligations, and should be presented more prominently….

While the…information is useful, it is difficult to understand. The $10.5 trillion is a large figure, but it needs to be seen in the context of the present value of taxable payroll over the infinite horizon, which is on the order of $275 trillion.

Later, in the 2004 report issued last March, the Trustees updated those figures to a $10.4 trillion deficit and a $295.5 trillion taxable payroll.

Social Security Deficit and Payroll Taxes

The percent of taxable payroll is the portion of an employee’s payroll tax that goes toward Social Security and is currently set at the rate of 12.4 percent, half of which is paid by the employer and the other half by employee. Over 75 years, the Trustees estimate the actuarial deficit is 1.8 percent of taxable payroll. This means that for the system to be completely solvent over the next 75 years, without adjusting benefits, payroll taxes would have to go up to 14.2 percent immediately. And to be solvent for the "infinite future," the $10.4 trillion shortfall equals 3.5 percent of taxable payroll, or a tax increase to15.9 percent of wages.

The Infinite Horizon – Is it useful?

Contrary to the technical panel’s endorsement, the American Academy of Actuaries, a nonpartisan organization that sets standards of practice for actuaries in the US , disputes the value of the infinite horizon projection. In fact, they said it probably would mislead anyone lacking technical expertise and that it provides “little if any useful information” about the system’s long-term finances. In a December 2003 letter to the Social Security Advisory Board, the Academy wrote:

American Academy of Actuaries: …The new measures of the unfunded obligations included in the 2003 report provide little if any useful information about the program’s long-range finances and indeed are likely to mislead anyone lacking technical expertise in the demographic, economic, and actuarial aspects of the program’s finances into believing that the program is in far worse financial condition than is actually indicated.

The Academy states that there is already much uncertainty using 75-year projections, and that extending estimates into the infinite future only increases that uncertainty, producing results that "are of limited value to policymakers.” They point out that changes which took place over the last 75 years were unforeseeable to actuaries in 1928, such as the Great Depression or the baby boom, and therefore have no reason to expect that unforeseeable changes will not occur in the future.

Demographic and economic assumptions have always been a controversial issue among demographers predicting the long-term sustainability of Social Security. Significant advances in life expectancy have taken place over the last century, which exert more pressure on the system's finances as people live longer lives. Whether future mortality rates will continue to slow or increase with medical technology, the Academy of Actuaries argues that the inconsistencies which arise from such long-range assumptions are "inevitable" when making projections over the course of infinity. For this reason, they conclude that the infinite-horizon measurement is a “detriment” to the Trustees Report. They write:

American Academy of Actuaries: Thus, we believe that including these values in the Trustees Report is unnecessary and is, on balance, a detriment to the Trustees’ charge to provide a meaningful and balanced presentation of the financial status of the program.

One final note: The Trustees and actuaries give the $10.4-trillion figure and others what is called "present value," a theoretical lump-sum figure that takes into account expected future inflation and interest rates. Otherwise, any continuing deficit projected into the infinite future would automatically become an infinitely large sum.

Deficit deception 2005

January 5th 2005 - If President Bush needs a name for his deficit-reduction plan, he might consider this: Deficit Deceit. That, at least, would be an honest description of a plan based on made-up numbers, wishful thinking and purposeful obfuscation.

During his re-election campaign, Bush promised to halve the budget deficit in the next five years. Even with an honest effort, that would be a formidable task considering the budgetary hole in which the nation finds itself. As it turns out, the administration isn't going to give it an honest effort.

Instead of using last year's actual $413-billion deficit to measure success, Bush is reportedly going to substitute an inflated projection of $521-billion. So with the stroke of a pen, the goal just got magically closer. Half of the larger amount will be a lot easier to reach, never mind that it is a phony number.

Real progress still will be difficult, given the administration's spending ambitions and intention to make existing tax cuts permanent, not to mention a likely repeal of the alternative minimum tax. So the plan conveniently assumes a highly optimistic (some say unrealistic) doubling of new tax revenues in the coming year, even though the administration's own projections for economic growth are flat.

Still taking no chances, Bush will leave significant expenses out of the budget, including the $100-billion cost of the wars in Iraq and Afghanistan, as though there is no real price to pay for those painful conflicts. And there will be no mention of a key item on his agenda - privatization of Social Security - that is expected to cost a staggering $2-trillion over the next couple of decades.

We are accustomed to exaggeration when it comes to campaign promises, but such deception in federal budget projections carries great risk. Deeper deficits would put an undue burden on future taxpayers and undermine our credibility with foreign investors, who have so far been willing to buy the growing supply of treasury bonds.

Beyond that, we can't understand why Bush would choose to start his second term with such an obviously deceitful budget. He may find out that Americans aren't so easily fooled.

Bush signs $800 Billion Debt-limit hike

November 19th 2004 - President Bush signed legislation on Friday raising the government's debt limit by $800 billion and clearing the way for Congress to send him an overdue $388 billion spending bill to finance most federal agencies.

The new federal borrowing cap is $8.18 trillion; that's 70 percent the size of the entire U.S. economy, and more than $2.4 trillion higher than the debt Mr. Bush inherited upon taking office in 2001.

The House approved the debt-limit measure Thursday by a near party line 208-204 vote. Its passage was not in doubt because the alternative was a jarring federal default, but it was nonetheless a battlefield for partisan fingerpointing.

Meanwhile, White House and bipartisan congressional bargainers moved to the verge of agreement on the year-end spending package expected to total $388 billion.

The giant spending measure, which leaders hoped to pass by Saturday, bears extra money for priorities like veterans, the wartorn Darfur region of Sudan, biohazard detection equipment for the post office, and likely thousands of projects for lawmakers' home districts.

The legislation was largely defined by Mr. Bush's demands for curbs on domestic spending, with only modest increases for favorites like education and cuts for some of the president's own initiatives.

"Everybody took hits," said House Appropriations Committee Chairman Bill Young, R-Fla., a chief author of the measure. "There will be members who aren't totally satisfied, but we we're committed to stay within the budget number."

Young said the bill would have been $20 billion larger had he accommodated all of his colleagues' requests for more projects.

Late problems included staunch White House opposition to an effort by some legislators to curb Mr. Bush's plan to contract out federal jobs to private businesses, as well as a plan to pay for some of the bill's increases by cutting unspent defense funds.

Democrats said GOP tax cuts were the problem and that the measure should have been accompanied by a revival of a requirement that the budget be cut to pay for any tax cuts or spending increases.

"I understand there's been an election, I understand you won and I commend you for it," said Rep. Charles Stenholm, D-Texas, who was defeated last month after a 26-year career as one his party's most stalwart deficit hawks. "But that also means you have the responsibility for your actions" because the GOP controls the White House and Capitol Hill, he said.

Republicans said Democratic cries for fiscal responsibility contrasted with their frequent calls for higher spending.

"There's nothing like a reformed lady of the evening," said Rep. Dan Burton, R-Ind.

In a written statement aimed at reassuring the financial markets that federal borrowing would be unimpeded, the White House said Mr. Bush would sign the legislation by Monday.

"The president commends the Congress for passing the debt limit increase. Passage of this legislation was important to protect the full faith and credit of the United States," the statement said.

The spending bill contains $14.8 billion for programs for low-income students, 2.5 percent more than last year. Biomedical research by the National Institutes of Health would grow 2 percent to $28.4 billion, well below the robust boosts it won in recent years.

Veterans' health care would grow to $30.3 billion, $1.9 billion over last year but less than veterans groups wanted. Aid for refugees in Sudan would be $404 million. A plan to draw $93 million of the Sudan aid from a slow-spending fund for rebuilding Iraq was dropped in deference to administration demands.

But the bill would cut grants for local water improvements and research supported by the National Science Foundation, and hold the federal subsidy for Amtrak to $1.2 billion, the same as this year.

Ending one lingering dispute, lawmakers agreed to $577 million, the same as last year, to continue developing a nuclear waste storage site at Yucca Mountain in Nevada, one lawmaker said.

Spending-bill bargainers also sorted through a stack of policy changes that lawmakers and lobbyists were trying to shove into one of the last measures Congress will approve this year.

Congressional aides said they believed a milk subsidy extension sought by Midwesterners and an effort to repeal required country-of-origin labels for meat would not make the final bill. Also thwarted was a drive to ease rules designed to protect endangered species from pesticides, the aides said.

The spending measure, covering the government budget year that started Oct. 1, is an amalgamation of nine separate bills financing all federal agencies except the Pentagon and the Homeland Security Department.

Senate votes to let US borrow up to $8.18 trillion

November 18th 2004 - A divided Senate approved an $800 billion increase in the federal debt limit yesterday, a major boost in borrowing that Senator John Kerry and other Democrats blamed on the fiscal policies of President Bush.

The 52-44 vote, mostly along party lines, was expected to be followed by House passage today. Enactment would raise the government's borrowing limit to $8.18 trillion -- more than eight times the total federal debt that existed when President Reagan took office in 1981.

In his first remarks on the Senate floor since Kerry's presidential bid ended in defeat two weeks ago, the Massachusetts Democrat said his former opponent had presided over ''the worst fiscal turnaround in our nation's entire history."

He was referring to the change from the $5.6 trillion in surpluses that were projected for the next 10 years when Bush took office in 2001, to the $2.3 trillion in deficits now estimated for the coming decade. Kerry and other Democrats complained that those bills will have to be paid by future generations.

''This can be called a birth tax, a birth tax that is dumped on the back of every American child unwillingly," said Kerry, who voted against the borrowing increase.

Republican senators did not join in the debate, underscoring how politically uncomfortable the measure is for them. They had refused to bring the bill to a vote before the elections.

Administration officials urged lawmakers to act quickly. The government reached its $7.38 trillion borrowing cap last month, and since then the Treasury Department has paid federal bills by taking cash from a civil service retirement account, which it plans to repay.

''We are nearing the end of our rope, and it is critical that Congress act," said Treasury spokesman Rob Nichols.

Failure to raise the debt ceiling could force a federal default and leave the government unable to pay Social Security recipients, federal workers, and other obligations.

The Senate took its debt-limit vote as congressional bargainers used the lame-duck session to continue writing a giant $388 billion spending measure to finance scores of agencies over the next 10 months.

Why Democrats Should Be Thankful

At least they don't have to clean up the Bush fiscal catastrophe.

November 4th 2004 - On Nov. 3, as the bleary-eyed nation returned to work, the Treasury Department announced an impending crisis. If the lame-duck Congress doesn't raise the statutory $7.384 trillion debt limit, which was intentionally breached in October, by Nov. 18, the world's greatest power will run out of cash.

Congress, with the White House's blessing, left town before the election without dealing with the debt limits—but not before passing an appalling, special-interest-written, corporate tax bill that will deprive the government of more than $100 billion in future revenues. That double irresponsibility—the lousy tax bill and the ignored debt limit—was a fitting end to the past four years of essentially one-party rule.

The only solace for sullen Democrats is that now Republicans might have to clean up their own fiscal mess. The fiscal record of the past four years has been one of unmitigated—and seemingly intentional—irresponsibility. A Republican Congress working with a Republican president created the massive new Medicare prescription-drug entitlement, passed a new, subsidy-crammed farm bill, committed hundreds of billions of dollars to war efforts, and loaded up on pork-barrel spending. Meanwhile, taxes were reduced—on wage earners, investors, and companies. The end result: We collected about the same amount of taxes in fiscal 2004 as we did in fiscal 1999. But we spent 34 percent more. The total national debt has risen 30 percent in the past four years. The fiscally conservative Clinton administration had committed government to restraining spending. But now a massive structural gap has opened up between the country's financial inflows and outflows. It's only the willingness of the Chinese and Japanese central banks to buy our debt that keeps us afloat.

Freed of the need to run for re-election, will Bush act more fiscally responsible in a second term? Wishful thinking. This crowd literally doesn't have a clue when it comes to fiscal matters. Bush actually believes he has restrained Congressional spending, Cheney believes deficits don't matter, and most members of the Bush economic team can't—or won't—speak truth publicly. As for Congress, when it comes to managing the nation's fiscal affairs, House Majority Leader Dennis Hastert is a pretty good wrestling coach, and Senate Majority Leader William Frist is a pretty good doctor.

And so, while the moral-values crowd may have won, the fiscal orgy in Washington is sure to continue. Given Bush's mandate and his stated desire to fix the Alternative Minimum Tax (a huge tax reduction), make the temporary tax cuts permanent (ditto), and transform Social Seucrity (massive borrowing), his pledge to halve the deficit by 2009 is absurd.

In decades past, increasing Republican dominance of the House and Senate would have meant more fiscal discipline. But Republicans increasingly dominate the states that are net drains on Federal taxes—the Southern and Great Plains states—while fading in the coastal states that produce a disproportionate share of federal revenue. (It's Republicans, not Democrats, who are sucking on the federal teat.) What Amity Shlaes quaintly identified in today's Financial Times as the "southern culture of tax cutting" has been married to the southern culture of failing to generate wealth and the southern culture of depending on federal largesse. The offspring is an unsightly deficit monster.

Establishmentarians have long wondered when the grown-ups will asserts themselves in the Republican party. The stark truth today is that there are no grown-ups. The day before the election, I saw my congressman, Republican Chris Shays of Connecticut, greeting potential voters on Platform 19 at Grand Central Station, the launching point for the 5:01 to New Haven, the Bushenfreude express. When I thanked him for cutting my taxes, Shays smiled broadly. But when I suggested that he had raised taxes on my children, he looked at me quizzically. "You have to know all these tax cuts aren't really tax cuts. They're just tax shifts," I said. "All this debt has to be paid back."

Shays acknowledged that there had been a massive increase in debt. "But 40 percent of that is due to spending." That was the moment I realized my sober, moderate representative may have slipped the surly bonds of reality. Like virtually every other Republican in Congress, Shays had voted for each of Bush's revenue-reducing tax cuts and every spending-increasing budget. And yet he seemed blissfully, willfully unaware of the role he—and his party—played in controlling, originating, and approving all that spending. "And did you vote for the Medicare bill?" I asked. "I did," he smiled. As I scurried off to get a seat before the doors closed, I heard a plaintive cry from one of the last remaining Republican moderates in Congress: "But I voted against the farm bill!"

If this is what passes for a deficit hawk, we're in big trouble. The Republicans have suffered no political consequences for destroying the nation's balance sheet, after all. Why should they take the painful efforts needed to fix the mess they created? No one is holding them accountable. It leaves those yearning for some return to fiscal sanity in the perverse position of hoping for a crisis in the bond or currency markets to shock the faith-based crowd back into reality. And when that adjustment comes, I can't wait to see how conservatives try to find a way to blame it on Clinton.

Administration pressures Congress to raise debt ceiling

November 4th 2004 - The Bush administration said yesterday it will run out of maneuvering room to manage the government's massive borrowing needs in two weeks, putting more pressure on Congress to raise the debt ceiling when it convenes for a special post-election session.

Treasury Department officials said they will be able to conduct a scheduled series of debt auctions next week to raise $51 billion. However, an auction of four-week Treasury bills due to be completed on Nov. 18 will have to be postponed unless Congress acts before then to raise the debt ceiling.

''Due to debt limit constraints, we currently do not have the capacity to settle our four-week bill auction scheduled to settle on Nov. 18," Timothy Bitsberger, acting assistant Treasury secretary for financial markets, said in a statement.

Congress is scheduled to return for a lame-duck session beginning Nov. 16 to deal with the debt ceiling, an omnibus spending plan for the rest of this budget year, and other matters.

The Republican-controlled Congress put off dealing with the debt ceiling before adjourning last month, preferring not to force members to vote on the politically sensitive issue of adding to the national debt before the elections. The government hit the current debt ceiling of $7.384 trillion Oct. 14, forcing Treasury to begin a series of bookkeeping maneuvers to keep financing the government's operations.

Reagan Policies Gave Green Light to Red Ink

June 9th 2004 - The line is not likely to make this week's eulogies to Ronald Reagan, but when Vice President Cheney allegedly declared, "Reagan proved deficits don't matter," he summed up an enduring argument from the former president's economic legacy.

In late 2002, Cheney had summoned the Bush administration's economic team to his office to discuss another round of tax cuts to stimulate the economy. Then-Treasury Secretary Paul H. O'Neill pleaded that the government -- already running a $158 billion deficit -- was careering toward a fiscal crisis. But by O'Neill's account of the meeting, Cheney silenced him by invoking his take on Reagan's legacy.

It wasn't that Reagan's policies proved that government borrowing had no impact on the economy. But his administration's record -- particularly with some years of hindsight -- did give reason to question traditional thinking and provided a new context for future arguments about deficit spending.

"The lesson we should have learned [from those years] is that deficits have little or no short-term economic impacts," said William A. Niskanen, a member of Reagan's Council of Economic Advisers.

As important, they appeared to have no impact politically, said Stephen Moore, a conservative economist at the Club for Growth who worked in Reagan's budget office.

"Voters and politicians became anesthetized to big deficits," Moore recalled. "Reagan was running these big deficits, and liberals argued it was going to be Armageddon. We were going to ruin the economy. Interest rates were going to go through the roof. And none of these things happened."

The fiscal shift in the Reagan years was staggering. In January 1981, when Reagan declared the federal budget to be "out of control," the deficit had reached almost $74 billion, the federal debt $930 billion. Within two years, the deficit was $208 billion. The debt by 1988 totaled $2.6 trillion. In those eight years, the United States moved from being the world's largest international creditor to the largest debtor nation.

To some economists, the impact was clear. Interest rates rose in the late 1980s and early 1990s, the economy slowed, then slipped into recession, and productivity barely advanced. Americans feared their nation had slipped into the shadows of Japan and Germany.

Reagan's "economic policy . . . was a disaster," University of California at Berkeley economic historian J. Bradford DeLong wrote this past weekend on his Web site. "The tax cuts made America a more unequal place, and the deficits slowed economic growth in the 1980s significantly."

But after the boom years of the 1990s, and the steady economic slides of those international rivals, some economists are reevaluating that version of history. The argument against deficits is more about self-righteous moralism than economics, they say.

The Reagan "experience changed the debate dramatically," said Kevin A. Hassett, an economist at the American Enterprise Institute. "Back then, it seems that everybody believed Reagan must be some kind of kook and the people who agreed with these views were flimflam artists. Not so anymore."

Indeed, since the Reagan years, the argument over the deficit has been turned on its head. In the 1980s, prominent liberal economists dismissed the significance of government red ink to head off the slashing of social welfare spending. Now, many liberal economists have become the fiercest deficit hawks to head off still more tax cuts.

But the shifts go beyond politics. For nearly a century, economic orthodoxy has held that federal borrowing harms the economy by driving up interest rates, diminishing investment and productivity, and placing an unfair burden on future generations, who will finance the spending and tax cuts of the present.

Traditional economists argue that as the government enters private capital markets to finance its deficits, it competes with private borrowers. A deficit equal to 1 percent of the size of the economy -- about $110 billion today -- would slap as much as a full percentage point on the interest rates consumers pay to finance a new home or new car. By that measure, today's deficit would account for nearly 4 percentage points of a 6 percent mortgage.

But the new argument holds that interest rates are set on a vastly larger global marketplace. With rising global prosperity, even a federal deficit as large as the United States' would present little competition for would-be investors. A soon-to-be-published paper by American Enterprise Institute economist Eric M. Engen and Columbia University economist R. Glenn Hubbard, the first chairman of Bush's Council of Economic Advisers, concluded that the record budget deficit of 2004 should raise interest rates by 0.12 percent.

"The world's capital markets are lot more sophisticated and flexible than they were then," said N. Gregory Mankiw, the current chairman of Bush's economic council. "That probably means that other things being equal, changes in domestic fiscal situations have less impact."

Indeed, this school of thought is becoming something of a consensus, Engen said. Deficits equal to 1 percent of the size of the economy should raise interest rates by 0.3 percent, he said. That is the low end of the 0.3 to 0.6 percent range postulated by Brookings Institution economists William G. Gale and Peter R. Orszag when they argued deficits are economically significant.

Benjamin M. Friedman, a Harvard University economist who lamented Reagan's fiscal policies in his 1988 book "Day of Reckoning," said the expansion of foreign credit has tempered the feared hikes in long-term interest rates that he thought would cripple the economy. But, he said, "that doesn't let deficits off the hook."

"It's important to realize that interest rates are set on world capital markets; therefore, a large deficit need not impact capital formation," he said, referring to economic investments in new plants and equipment that drive growth. "But that's identical to saying we will continue to do capital formation, but we'll do it by forever borrowing abroad."

And that spells trouble, said Niskanen of Reagan's Council of Economic Advisers. Debt does have to be repaid, and foreign investors -- primarily the central banks of Japan, Britain and China -- own $1.7 billion of federal debt. That, he said, has made the country "terribly dependent" and "terribly vulnerable."

That is a bipartisan fear. "The key point is, even if it were sustainable, it's not desirable," said Orszag, a prominent Democratic economist. "We still will owe the money to foreigners. We're still mortgaging our future national income. Just because you can take out a larger mortgage to buy a bigger house doesn't mean you should."

Bush sends record $521 billion Deficit to Hill

February 2nd 2004 - President Bush sent Congress a $2.4 trillion election-year budget on Monday featuring big increases for defense and homeland security but also a record $521 billion deficit.

To battle the soaring deficits, Mr. Bush proposed squeezing scores of government programs and sought outright spending cuts in seven of 15 Cabinet-level agencies. The Agriculture Department and the Environmental Protection Agency were targeted for the biggest reductions.

The president declared that his spending blueprint, which will set off months of heated debate in Congress, "advances our three highest priorities" winning the war on terror, strengthening homeland defenses and boosting the economic recovery.

"Our nation remains at war," Mr. Bush declared in his budget message. "This nation has committed itself to the long war against terror. And we will see that war to its inevitable conclusion: the destruction of the terrorists."

The president's plan for the 2005 budget year, which begins next Oct. 1, proposes spending $2.4 trillion for all government activities, up 3.5 percent from the current year. Revenues will total $2.04 trillion, a sizable 13.2 percent increase that the administration forecasts will occur from growing tax receipts powered by a stronger economy.

The budget assumes economic growth of 4.4 percent this year and 3.6 in fiscal 2005. For all of 2003, the economy grew at a 3.1 percent rate.

The president projects the 2005 deficit will be $364 billion, down from a projected record high deficit in dollar terms of $521 billion this year. He pledged to cut that in half over the next five years.

The president's budget states that stronger economic growth and reductions in general government spending will produce steady improvements in the deficit, which the administration projects will fall to $237 billion in 2009.

However, Democrats immediately attacked the spending proposal for what they viewed as harmful reductions in various government programs and the president's insistence on making his 2001 and 2003 tax cuts permanent at a cost projected in the budget of more than $900 billion over 10 years.

"This administration pledged that its tax cuts and policy choices would not turn record surpluses into record deficits, but this budget shows that's exactly what's happened," said Senate Democratic Leader Tom Daschle of South Dakota.

Sen. Ted Kennedy, D-Mass, called on Congress to reject Mr. Bush's spending plan, charging it was the "most antifamily, anti-worker, anti-healthcare, anti-education budget in modern times."

Mr. Bush would boost military spending by 7 percent in 2005, but that does not include the money needed to keep troops in Iraq and Afghanistan. Officials said a supplemental request for these funds will be sent to Congress but not until after the November elections. Congress last year approved an $87.5 billion wartime supplemental for the current budget year.

Homeland security, another top priority would receive a 10 percent boost, including an 11 percent increase in FBI funding to support increased counterterrorism activities.

A firestorm of criticism erupted last week when it was revealed the administration had re-estimated the 10-year cost of the newly enacted Medicare prescription drug benefit program at $534 billion, far above the $400 billion figure Congress used in passing the measure two months ago.
The budget documents said the major reasons for the discrepancy were higher estimates for the number of participants in the program and new projections for health care price increases.

As previously announced, Mr. Bush's budget proposes an ambitious program to return Americans to the moon as early as 2015 and eventually send a mission to Mars. However, the budget only contains $1 billion in new money for the effort over the next five years with another $11 billion reallocated from current NASA programs. In 2005, Mr. Bush proposes increasing NASA's budget by 6 percent to $16.2 billion.

Other programs that would receive boosts in Mr. Bush's budget include his No Child Left Behind education program; job training programs, including one that links community colleges with employers' and an $18 million increase for the National Endowment for the Arts.

Mr. Bush's budget proposes to hold the spending increase for all of the government's discretionary programs — those other than entitlement programs such as Social Security and Medicare — to 3.9 percent in 2005. That average rise includes big boosts for the military and homeland security.

Scores of government programs outside those two areas will be restrained to an overall increase of just 0.5 percent, below the rise in inflation, and some agencies will suffer outright cuts.

The proposed military budget, which goes to Congress to decide its fate, rings in at $401.7 billion. According to figures from the nonprofit Center for Defense Information, that will make U.S. military spending greater than the combined total of the next 21 biggest spenders, including Russia, Britain, China and France.

Under the president's budget, missile defense efforts would receive almost $10.2 billion in the new budget. That is nearly a $1.2 billion increase over this year, according to budget books provided by the Pentagon.

The proposed budget also includes a 3.5 percent raise in base pay for military personnel.

The budget also includes money to purchase 11 V-22 Osprey tiltrotor aircraft, 8 for the Marine Corps and 3 for the Air Force. The program was plagued by deadly crashes during its development.

Bush's budget for 2005 seeks to rein in domestic costs

January 4th 2004 - Facing a record budget deficit, Bush administration officials say they have drafted an election-year budget that will rein in the growth of domestic spending without alienating politically influential constituencies.

They said the president's proposed budget for the 2005 fiscal year, which begins Oct. 1, would control the rising cost of housing vouchers for the poor, require some veterans to pay more for health care, slow the growth in spending on biomedical research and merge or eliminate some job training and employment programs. The moves are intended to trim the programs without damaging any essential services, the administration said.

Even with the improving economic outlook, administration officials said, the federal budget deficit in the current fiscal year is likely to exceed last year's deficit of $374 billion, the largest on record.

The Congressional Budget Office and the White House budget office have projected a deficit of more than $450 billion this year.

But Joshua B. Bolten, director of the White House Office of Management and Budget, has said the president's policies will cut the deficit in half within five years, through a combination of economic growth and fiscal restraint.

Mr. Bush's budget request, to be sent to Congress by Feb. 2, includes several tax cut proposals, including new incentives for individual saving and tax credits to help uninsured people buy health insurance. The Democratic candidates for president have accused Mr. Bush of doing little to halt the recent rapid increase in the number of uninsured.

Administration officials said the president's budget would call for an overall increase of about 3 percent in appropriations for so-called domestic discretionary spending, which excludes the Department of Homeland Security, the Defense Department and insurance benefits like Medicare and Medicaid.

As he completes work on his budget, Mr. Bush faces criticism from conservatives, who say he has presided over a big increase in federal spending, and liberals, who say his tax cuts have converted a large budget surplus to a deficit.

Total federal revenues have declined for three consecutive years, apparently the first time that has happened since the early 1920's. But in those years, from 2000 to 2003, total federal spending has increased slightly more than 20 percent, to $2.16 trillion last year.

Brian M. Riedl, an economist at the conservative Heritage Foundation, said: ''President Bush is not focusing on his fiscal conservative base right now. He's trying to position himself in between conservatives in Congress and the Democratic Party. It may be good politics, but it's bad policy, a lost opportunity to get runaway government spending under control.''

White House officials deny that they have acquiesced in a domestic spending spree. They insist, as do some liberal advocacy groups, that appropriations for domestic programs are not exploding.

Such spending, they say, will increase 3 percent in 2004, after increases of 5 percent in 2003, 6 percent in 2002 and 15 percent in 2001. Moreover, they say, increased corporate profits should lead to an increase in corporate tax payments, lifting revenues in the coming years.

Richard Kogan, a budget analyst at the Center on Budget and Policy Priorities, a liberal-leaning research and advocacy group, said the increase in military and domestic security spending in the last two years dwarfed the increase in domestic discretionary programs, which did not quite keep pace with inflation.

''The increases for defense, international affairs and homeland security have been much greater -- and thus have played a much larger role in the return to deficits -- than the increases for domestic appropriations,'' Mr. Kogan said.

Housing officials said the administration was alarmed at increases in the cost of vouchers, which provide rental assistance to low-income families, and would take steps to prevent local housing agencies from issuing more vouchers than Congress had authorized. Congress has tentatively decided to provide $14.2 billion for renewal of vouchers this year, an increase of about 15 percent.

Federal officials said they would also require families seeking housing aid to help the government obtain more accurate information on their earnings. As a condition of receiving aid, families would have to consent to the disclosure of income data reported to a national directory of newly hired employees. The directory was created under a 1996 law to help enforce child-support obligations.

Administration officials said the president's budget would also slow the growth of spending at the National Institutes of Health, which doubled in the last five years, reaching $27.1 billion in 2003. Congress has tentatively agreed to provide $28 billion this year, slightly more than Mr. Bush requested, and administration officials said they would seek an increase of 3 percent or less for 2005.

Budget officials defended the proposal, saying they wanted to be sure the agency was properly managing a huge infusion of federal money.

Mr. Bush proposed last year to double co-payments on prescription drugs for many veterans, primarily those with higher incomes and no service-connected disabilities. The White House reaffirmed its support for that proposal in November.

In the last week, the Pentagon has been considering a new proposal to increase pharmacy co-payments for retirees with at least 20 years of military service. Under the proposal, the charge for a generic drug would rise to $10, from $3, while the charge for a brand-name medicine would rise to $20, from $9.

The Military Officers Association of America criticized this as ''a grossly insensitive and wrong-headed proposal.'' In e-mail messages to the White House, members of the association asked Mr. Bush, ''Why do your budget officials persist in trying to cut military benefits?''

Col. Steven P. Strobridge, director of government relations at the association, said he understood that the Pentagon was now inclined to study the issue for a year and renew the proposal, as part of a systematic effort to ''reduce military health care costs.''

Administration officials said they expected Mr. Bush to seek increases of $1 billion, or 10 percent, for the education of children with disabilities and $1 billion, or 8 percent, in Title I grants for schools with high concentrations of students from low-income families.

Budget officials said they were concerned that they did not have enough money for Pell grants to keep pace with a recent surge in low-income students seeking help with college costs. They said Mr. Bush would address that problem in some way, without seeking an increase in the maximum grant, now $4,050.

The budget also seeks money to train more nurses, to encourage sexual abstinence among teenagers and to recruit ''volunteers in homeland security,'' who can respond to emergencies, including terrorist attacks.

Bush Deficit Plan Draws Derision

December 17th 2003 - President Bush's goal of cutting in half a projected $500 billion federal deficit within five years is being dismissed as too timid by conservatives, unachievable by analysts and laughable by Democrats.

Mr. Bush will include the objective in the $2.3 trillion budget for 2005 he sends Congress in February, nine months away from the presidential and congressional elections. The goal is backed by many Republicans, but conservatives want a bolder move against the record deficits and big spending increases the administration has run up.

"It's a rather anemic goal, actually," said Stephen Moore, president of the conservative Club for Growth. "We should be talking about how to balance the budget."

Administration officials say their goal is a 2009 deficit that is half of this year's level, which White House budget chief Joshua Bolten has said he expects to hit $500 billion.

Achieving a $250 billion deficit in five years, however, could take hundreds of billions in savings, a difficult political task.

White House officials deny warnings circulating on Capitol Hill that they might define their goal as halving the 4.4 percent share of the U.S. economy that a $500 billion deficit would be next year to 2.2 percent in five years. That would make their target 2009 deficit about $320 billion, leaving their task $70 billion easier.

The deficit for the budget year that ended Sept. 30 was $374 billion, the highest ever in dollar terms. Administration officials say the more important measure is how the shortfall compares with the size of the economy, with last year's 3.5 percent share far below the 6 percent post-World War II peak of 1983.

White House officials say to achieve their goal, Mr. Bush will rely chiefly on two strategies. He will propose extending tax cuts that would otherwise expire, which they say will spur the economy, and limiting the growth of spending that Congress must approve each year, probably to 4 percent or less.

"We're working with Congress to hold the line on spending," Mr. Bush said Monday. "And we do have a plan to cut the deficit in half."

Democrats say that even if Mr. Bush achieves his objective, he would leave huge shortfalls because he has driven deficits so high. Mr. Bush took office when large surpluses were projected for the foreseeable future, a forecast since dashed by recession, the costs of fighting terrorism and wars, and tax cuts.

"It's like so much with this administration in respect to fiscal matters, it's all spin, all the time," said Sen. Kent Conrad of North Dakota, top Democrat on the Senate Budget Committee.

A $250 billion deficit would be the fifth highest on record in dollar terms. A $320 billion shortfall would be the second worst.

Thanks to projections that the economy will continue to strengthen, deficits are expected to gradually improve after this year.

The nonpartisan Congressional Budget Office projected last August that after peaking at $480 billion this year, the gap would drop to $170 billion by 2009 — if no new tax cuts are enacted and spending grows only at the rate of inflation.

Those assumptions have already proved untrue. Congress since August has enacted a Medicare expansion creating prescription drug coverage and improvements in veterans' benefits projected to add a combined $53 billion to the deficit in 2009.

Other costly proposals in the works include Mr. Bush's plan to extend expiring tax cuts; a revision of the alternative minimum tax to prevent middle-income earners from paying it; and energy legislation that has already passed the House.

If, along with those items, spending controlled by Congress grows at the average 7.7 percent annual rate seen since 1998, the resulting 2009 deficit would be $666 billion, G. William Hoagland, budget aide to Senate Majority Leader Bill Frist, R-Tenn., warned senators in a recent memo.

That would mean $416 billion in budget savings — an enormous amount — would be needed to reduce that year's red ink to $250 billion.

If congressionally approved spending grows only at the rate of inflation, the 2009 deficit would be $432 billion, Hoagland wrote.

Lawmakers have shown little taste for such a small increase. If they did — and that would mean no unforeseen expenses like new wars it would still require $182 billion in 2009 savings.

Acknowledges House Budget Committee Chairman Jim Nussle, R-Iowa, who supports Mr. Bush's goal, "It's not an easy lift."

That's an understatement, say many budget analysts. They say that considering the added tax cuts and spending increases Congress is likely to enact, it would take politically unthinkable tax increases and cuts in popular programs to achieve the savings needed to halve the projected deficit.

"Given the current makeup of Congress and the incumbent in the White House," halving the red ink in half is "fanciful," said Robert Reischauer, former Congressional Budget Office director and president of the Urban Institute.

"It's not a plan, it's a set of wildly optimistic assumptions," said Robert Bixby, executive director of the bipartisan Concord Coalition, which lobbies for balanced budgets.