Bush Plans Fiscal 2008 Budget of About $2.9 Trillion (Update3)

By Roger Runningen and Michael McKee

Jan. 3 (Bloomberg) -- President George W. Bush plans to send Congress a ``constrained'' fiscal 2008 budget of about $2.9 trillion that would cut some domestic programs, including farm subsidies, his budget director said.

``It'll be roughly that,'' Rob Portman, director of the Office of Management and Budget, said in an interview. ``It'll be under $3 trillion.'' The administration hasn't settled on a final figure, he added.

The president sends his 2008 budget proposal to Congress on Feb. 5, and the figure would represent an increase of roughly 4.5 percent over the $2.77 trillion in spending plan he submitted last year.

Bush, who has two years left in office, said earlier today that his spending plan would lead to a balanced budget in five years. Portman's office projected in July the budget deficit would be $339 billion in this fiscal year, up from $248 billion last year. The OMB estimated that in 2008 the deficit would narrow to $188 billion.

Portman said the administration would seek cuts in some mandatory spending programs, specifically naming ``the farm programs.''

Possible Cuts

While Portman didn't give details, White House budget officers may be targeting government price support payments to farmers because market prices for corn, for example, are near a 10-year high and well above the federal subsidy rate. The administration had projected spending about $13.4 billion on such payments in the current budget, according to Agriculture Department figures.

Government spending on all farm programs fell to an estimated $16.5 billion in 2006 from $24.3 billion in 2005, according to a November report from the Agriculture Department. Subsidies are dropping as an ethanol boom raises prices for corn and soybeans, reducing the need for government payments.

Cuts also will be sought in some domestic programs outside homeland security, and the White House plans spending cuts in Medicare and Medicaid ``similar to what we've done in the past,'' Portman said without giving specifics.

``We'll see savings,'' he said. The budget ``will be constrained.''

The proposal covers the fiscal year that begins Oct. 1.

The spending plan ``will address the most urgent needs of our nation,'' Bush said at the White House today after meeting with his Cabinet officers. ``In particular, the need to protect ourselves from radicals and terrorists, the need to win the war on terror, the need to maintain a strong national defense, and the need to keep this economy growing by making tax relief permanent.''

Deficits

The budget has gone from a $127 billion surplus when Bush took office in 2001 to a deficit that reached a record $413 billion in 2004. Bush has cited the impact of the Sept. 11 attacks and a recession. Tax cuts he pushed through Congress at the start of his term also reduced government revenue at the same time federal spending kept rising.

Another factor is the cost of the war in Iraq, which administration officials acknowledged has been higher than they estimated. The Defense Department is seeking $99 billion more for the war and operations in Afghanistan in the current fiscal year on top of the $70 billion already approved by Congress. Last year's emergency supplemental funding totaled about $120 billion.

Portman said the president's projections for a balanced budget include estimates for war costs. The administration wants to keep that spending separate from the regular Defense Department budget, which was $448 billion this year.

Doubts on Budget

Democratic Representative John Spratt of South Carolina, who will be chairman of the House Budget Committee, said he was skeptical of a Bush's pledge to balance budget in five years.

The total costs of the wars in Iraq and Afghanistan now top $500 billion, with annual costs of moiré than $100 million. ``With costs like that,'' he said, ``it's going to be hard to bring the budget to balance buy 2012.''

Though the federal deficit dropped to a four-year low of $248 billion in fiscal 2006, it was fed by a booming economy. Tax revenues climbed 11.8 percent in 2006, after rising 14.6 percent in 2005, White House budget office figures show.

``Nobody expects that surge to continue to repeat itself,'' Sprat said. ``As the economy begins to slow down, revenues won't be far behind'' in declining, putting a squeeze on the budget.

Earmarks

The president, facing a Democratic congressional majority for the first time in his presidency, today pressed lawmakers to halt the ``dead of night process'' of adding special spending projects to legislation, known as earmarking.

``Congress needs to adopt real reform that requires full disclosure of the sponsors, the costs, the recipients, and the justifications for every earmark,'' he said.

Democratic leaders have signaled agreement with Bush on cutting the number of earmarks, which often are used to fund roads, bridges and economic development projects in lawmakers' district.

The Congressional Research Service estimates the number of special projects inserted into laws has grown from about 3,000 costing $20.2 billion in fiscal 1996 to 13,000 costing $67 billion in 2006. Bush said he wants the number and cost to be cut by at least half next year.

Bush promised to cooperate with the Democrats on legislative goals while warning them against raising taxes to fund programs.

``Congress has changed,'' Bush said. ``Our obligations to the country haven't changed.''

Congressional Agenda

For their part, Democrats led by incoming House Speaker Nancy Pelosi of California and Senate leader Harry Reid of Nevada plan a rush of 100 hours of legislative activity, some of which may collide with Bush's agenda.

Spratt said congressional Democrats won't have much room for increased domestic spending, and probably will permit increases enough to cover inflation.

He said Democrats ``will reinstate this week'' so-called pay-go rules, which require that spending increases be offset by spending cuts elsewhere or tax increases.

Bush also repeated previous calls for Congress to overhaul the Social Security, Medicare and Medicaid programs to improve solvency and grant him the power to delete provisions from legislative or spending bills, known as a line-item veto.

Tonight, on the eve of Congress opening its 110th session, Bush hosts a social reception for about a dozen members of the House and Senate from both parties, mixing in some legislative business.

To contact the reporter on this story: Roger Runningen in Washington at rrunningen@bloomberg.net