President George W. Bush yesterday sent Congress a budget plan for next year that would expand the military, slash taxes for investors and overhaul Medicare, racking up record deficits even without the cost of a possible war with Iraq.
"A recession and a war we did not choose have led to the return of deficits," Bush said in a statement in his $2.23 trillion fiscal 2004 budget, which forecasts a deficit of $304 billion for the current fiscal year, surpassing in dollar terms a 1992 record of $290 billion.
Underscoring the dramatic erosion in the nation's fiscal picture since a record surplus in 2000, the White House now expects deficits to total $1.084 trillion over the next five years. As recently as 2001, the government was forecasting 10-year budget surpluses of $5.6 trillion.
Democrats point the finger at Bush for pursuing what they see as reckless tax cuts that will sharply increase the nation's debt burden and accelerate its economic decline.
White House officials blame the 2001 recession, the September 11 attacks on the World Trade Centre the same year and the war on terrorism for the bigger-than-expected deficits, and insist the imbalance is manageable.
"Compared to the overall federal budget and the $10.5 trillion national economy, our budget gap is small by historical standards," said Bush, whose budget forecasts a rebound in economic growth to 2.9 per cent this calendar year and 3.6 per cent in 2004.
While ramping up funding on homeland security to $41 billion and the military to $379.9 billion in fiscal 2004, Bush is asking the Republican-controlled Congress to halve spending growth for other key programs, fueling a battle with Democrats over tax and spending priorities in the run-up to the 2004 presidential election.
But several of the most ambitious initiatives in Bush's budget may stand little chance of passage in their current form, particularly proposals to slash taxes on corporate dividends and reform the Medicare system which provides health care to seniors, Democrats and some moderate Republicans say.
They cite congressional concerns over deepening government deficits, which the White House expects to reach $307 billion in fiscal 2004, beginning October 1, before improving each year thereafter. The federal government would still run deficits of close to $200 billion in each of the next five years.
But when viewed in proportion to the size of the economy, the projected deficits in Bush's budget would still remain well below the record level of six per cent of gross domestic product during the Reagan administration in 1983.
Democrats accuse Bush of piling up the nation's debt while using Social Security funds to finance his tax cuts and other spending priorities.
"He's passing the buck to our children. It's stunning how much debt he's going to add. History will not treat this kindly," said Senator Kent Conrad of North Dakota, the top Democrat on the Senate Budget Committee.
Bush's deficit figures do not include the cost of a possible war with Iraq, which officials say could add at least $61 billion - the amount spent on the 1991 Gulf War - to the projected shortfall this year alone.
The space shuttle Columbia disaster this weekend is also prompting calls for increased spending to upgrade the aging shuttle fleet and develop a new space plane.
While Nasa's budget has been cut over the last decade, Bush would boost funding for the space agency by nearly $500 million to $15.47 billion in his fiscal 2004 budget. Additional funding could be proposed for Nasa when Congress considers the budget.
While homeland security, the military and tax cuts take priority, the White House wants to reduce spending growth in other programmes to three per cent to four per cent. That would be slightly above the rate of inflation, which the White House forecasts at a tame 2.1 per cent in 2004.
Republicans make no apology for restraining spending.
"We can't do everything for everybody," Senate Majority Leader Bill Frist, a Tennessee Republican, said last week. "And you're not going to see us, as the responsible party in the majority, making promises that we can't keep."
But Democrats warn that social programs will be underfunded and face painful cutbacks under Bush's budget plan.
Hoping to boost the economy and stock markets before the 2004 election, Bush is proposing a $670 billion 10-year package that would slash dividend taxes and speed income tax cuts.
He also proposes setting aside nearly $400 billion over a decade to overhaul Medicare and provide seniors with prescription drug benefits.
But Bush's tax cuts and Medicare plan face opposition from Democrats and some Republicans. Critics say the proposals would bring bigger deficits and force seniors to choose between their traditional health-care plan and subsidised drug coverage.
More assured of passage are Bush's big budget plans for homeland security and the military.
Of $41.3 billion earmarked for domestic security, Bush's budget for fiscal 2004 will include $36.2 billion for the newly created Department of Homeland Security to protect Americans against terrorist threats. That compares to an overall homeland security budget of $37.7 billion in 2003, $33 billion of which was earmarked for the department.
Pentagon spending would rise to $379.9 billion - from $364.6 billion in 2003 - or to nearly $400 billion including spending to maintain and oversee the nation's nuclear weapons.
The six-year Pentagon spending plan would include increases of $20 billion a year in each of the subsequent five years, pushing the military budget as high as $484 billion in 2009.