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The Honolulu Advertiser
Posted on: Tuesday, February 5, 2008

Medicare takes hit in $3.1 trillion Bush budget

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By Peter G. Gosselin
Los Angeles Times

Hawaii news photo - The Honolulu Advertiser

President Bush displays an electronic version of the fiscal 2009 federal budget during a meeting with Cabinet members. The $3.1 trillion proposal drew criticism from Democrats as well as some Republicans.

PABLO MARTINEZ MONSIVAIS | Associated Press

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BUDGET HIGHLIGHTS

Here are some elements of President Bush's budget:

DEFICITS: The plan will claim deficits in the $400 billion range for this year and next. For the 2009 budget year covered by the plan, deficits are likely to rise higher than Bush predicts after additional war costs are added.

DEFENSE: The Pentagon would get a $35 billion increase to $515 billion for core programs, about 7 percent, with war costs additional. Another $21 billion would go to the Energy Department for nuclear weapons programs. A $70 billion "bridge fund" for the wars in Iraq and Afghanistan would give the next president time to consider options, with tens of billions of dollars more needed regardless of any strategy shift.

DOMESTIC APPROPRIATIONS: These would be essentially frozen at current levels, with most services being cut after inflation and population growth are factored in.

HOMELAND SECURITY: Overall, the budget for homeland security programs will increase by almost 11 percent, with a 19 percent increase for border security and immigration enforcement efforts, including new money to secure the border with Mexico.

DIPLOMATS: In a victory for Secretary of State Condoleezza Rice, Bush wants to hire nearly 1,100 new diplomats to address severe staffing shortages and begin an effort to double the size of the State Department over the next decade.

MEDICARE AND MEDICAID: The programs will see almost $200 billion in cuts over the next five years, about three times the savings proposed last year but rejected by Congress. Much of the savings would come from freezing reimbursement rates for most healthcare providers for three years and from cutting payments to hospitals serving large numbers of the uninsured poor.

HEALTH: Health and Human Services Department funding would be cut by $2 billion a 3 percent reduction. Funding for the National Institutes of Health would be frozen. The Food and Drug Administration would receive a 6 percent boost to $2.4 billion to ramp up food and drug safety efforts.

EDUCATION: Education programs would be frozen at $60 billion, with no increase to keep pace with inflation. Bush is pushing to restore $600 million lawmakers cut from Reading First, which serves low-income children. Title I grants, the main source of federal funding for poor students, would rise about 3 percent. Special education would receive $11.3 billion, a $330 million increase.

MILESTONES: Bush's proposal would be the first budget to propose spending $3 trillion. The budget hit $2 trillion for the first time in 2002, also when Bush was in office, and reached $1 trillion for the first time in 1987 during the Reagan administration.

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WASHINGTON President Bush yesterday submitted a $3.1 trillion budget for the next fiscal year that reflected his strategy for dealing with a costly war and a troubled economy: substantially boost military expenditures, rein in domestic spending - including for Medicare - and more than double the deficit.

The proposal set the stage for a long election-year struggle, drawing sharp criticism from the Democratic majority in Congress as well as a smattering of Republicans concerned about the president's habit of leaving large chunks of the spending out of his annual budget blueprint.

The proposal calls for making permanent Bush's 2001 and 2003 tax cuts, which have been criticized as skewed to the rich and which would begin expiring next year. Doing so would cost Washington more than a half-trillion dollars in forgone revenues over the next five years and more than $2 trillion over the next decade, but the president has argued that they play an important role in stimulating economic growth.

The new budget would increase Pentagon spending by 8.1 percent - to $518.3 billion, plus an additional $70 billion for the war on terrorism.

White House aides acknowledged that the new numbers didn't reflect the full amount that would be needed for the wars in Iraq and Afghanistan over the next year. The president regularly has handled the two conflicts as emergency spending and therefore outside normal budget channels.

Even as he sought to increase military spending, Bush proposed slowing the growth of entitlement programs such as Medicare by as much as $208 billion over five years and eliminating or reducing various education, training, highway and environmental programs to cut $18 billion-plus from the budget next year.

CRITICS HAVE THEIR SAY

Bush's plans for defense and Medicare drew criticism from both sides of the political aisle. Coming in an election year and being the first to break the $3 trillion mark, the new budget blueprint seemed destined to set off an extended battle.

Sen. Judd Gregg, R-N.H., the top GOP member on the Senate Budget Committee, said the latest Bush budget, the president's last, was disappointing, because it "does not accurately reflect" expected war costs.

"I am concerned that this proposal will make it too easy for Congress to return to shadow budgeting and ignore costs we already know will occur," he said. Gregg praised Bush, however, for attempting to curb the growth of Medicare.

But it was the proposed cuts in Medicare, the health-insurance program for the elderly, and Medicaid, the state-federal health program for the poor, that drew the sharpest criticism from leading Democrats.

Max Baucus, D-Mont., chairman of the Senate Finance Committee, called the proposed reductions "dead on arrival with me and with most of the Congress."

White House budget director Jim Nussle acknowledged that the federal deficit would double from $162 billion in fiscal 2007 to more than $400 billion in both fiscal 2008 and 2009. He attributed the increase entirely to the fiscal stimulus plan on which Bush and House leaders have agreed.

IN THE BLACK BY 2012?

The new budget portrays the deficit jump as temporary and shows Washington operating in the black for the first time in more than a decade by 2012.

But independent analysts said the administration's prediction of vanishing deficits was based on a series of overly optimistic assumptions, among them that Congress would drop its temporary relief from the so-called alternative minimum tax.

The forecast also assumed there would be no more war costs beyond the $70 billion in the new budget.

If, as seems likely, Congress continues AMT relief and war costs follow the least costly scenario advanced by the Congressional Budget Office, Congress' numbers-crunching arm, Washington still would be running deficits in 2012 and 2013.

In addition to omitting what critics see as unavoidable future expenses, the administration seems to have based its deficit predictions on an unusually sunny economic forecast.

The White House estimates that the economy will grow at a 2.7 percent rate this year, significantly faster than CBO or many private forecasters predict.

WAR COSTS IN FLUX

When it comes to the war, Pentagon officials insisted yesterday that next year's costs could not be known, at least until Army Gen. David H. Petraeus returns to Washington next month to give his recommendations about how to proceed in Iraq.

Independent military analysts said the final number could be two to three times the $70 billion the administration is using as a placeholder.

"If the violence in Iraq stays at its recently reduced levels - or even declines - that $70 billion should be about doubled to get through the entire year," said Winslow T. Wheeler, a frequent Pentagon budget critic with the nonpartisan Center for Defense Information.

Medicare, which serves about 44 million seniors and disabled people, would be squeezed by $178 billion over five years, reducing its growth from an average of 7.2 percent a year to 5 percent a year. At least $115 billion of the savings would come from reduced payments to hospitals, nursing homes, home health agencies and other institutions, according to initial calculations by a senior Democratic congressional aide.

"The Medicare portion of the budget should be viewed as a stark warning," Health and Human Services Secretary Michael Leavitt said. "It's very clear to me that members of Congress don't want to deal with this."

The president called for reductions totaling $17 billion over five years in Medicaid, which serves about 55 million people, including the poor and many nursing home residents.

In an apparent overture to Congress, the president called for an increase of nearly $20 billion over five years in a program that offers health insurance to children of the working poor. That was a substantial increase over the $5 billion Bush offered last year during a protracted battle with Congress.

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