[A-List] US economy: fiscal crisis

["Michael Keaney" <michael.keaney@xxxxxx>]

US budget projects deficit rising to $521bn
By Alan Beattie in Washington
Financial Times: February 3 2004

President George W. Bush on Monday proposed a big boost in defence and
security spending in a budget plan that cut a swathe of domestic programmes
while projecting a swelling deficit of $521bn for the current year.

The downbeat budget proposal for the next fiscal year echoed the State of
the Union address in being notably bereft of large new initiatives.

The White House said its priorities were continuing to fund defence and
homeland security while restricting government spending elsewhere.

Joshua Bolten, the White House budget director, said the proposal would
"advance three overriding national priorities: winning the war on terror,
protecting the homeland and strengthening the economy".

However, Democrats attacked the budget for cutting spending while continuing
to advocate that temporary tax cuts be made permanent.

"While proposing huge new tax cuts with one hand, the administration
squeezes funding for the nation's priorities with the other," said John
Spratt, the senior Democrat on the House of Representatives' budget
committee.

"Even holding domestic appropriations below a 1 per cent increase in this
year's budget would make only a small dent in the deficit but would reduce
funding for transportation, environmental protection, small businesses and
other priority services," he said.

Mr Bolten proposed eliminating 65 spending programmes and cutting another 63
to help reduce the deficit by half in five years. But these programmes are
small compared with the size of the deficit. Mr Bolten said that eliminating
the 65 programmes would save $4.9bn a year - equivalent to less than 1 per
cent of this year's deficit.

Some proposed cuts fell on areas with little backing among conservative
congressional Republicans, including environmental programmes. But others,
such as a proposed 13 per cent cut in the budget for the Army Corps of
Engineers, are likely to face stiff legislative resistance.

The budget also proposed a 3.1 per cent cut in funding for the Justice
Department, a 3.6 per cent cut for Treasury and a 3.9 per cent reduction for
transportation. Even some congressional Republicans said the figures were
unrealistic and would provoke a bitter fight on Capitol Hill.

"No one should expect significant deficit reduction as a result of austere
non-defence discretionary spending limits," said Bill Young, the Republican
chairman of the House appropriations committee. "The numbers simply do not
add up."

The budget predicts the deficit falling to $364bn next fiscal year, which
begins in October. But it does not include a planned supplemental budget for
spending in Iraq, which Mr Bolten said should not exceed $50bn.

The budget confirmed that recent reforms to Medicare, the federal health
programme, would cost $540bn rather than the original estimate of $400bn
over 10 years. But it laid out no plans to deal with the long-term fiscal
cost of Social Security and Medicare.

Another looming problem, the Alternative Minimum Tax - intended for the very
rich but beginning to affect the middle class - was delayed with a temporary
fix.