Bush considers domestic spending freeze, prods Congress on Social Security

Friday, December 17th 2004, 6:57 am

By: News On 6

WASHINGTON (AP) _ President Bush is considering asking Congress to freeze domestic spending next year or cut it slightly, even as he prods lawmakers to allow younger workers to divert some of their Social Security taxes into personal investment accounts.

The two plans, which promise to be dominant issues next year, share a common thread: massive federal deficits that have set consecutive records, peaking at $413 billion last year. The shortfalls have prompted Bush to seek savings from non-defense, non-domestic security programs, and have limited his options for shoring up Social Security for the looming retirement of baby boomers.

``This is an issue on which I campaigned and I'm still standing,'' Bush said of revamping Social Security at a White House economic conference, words he hoped would prompt support from lawmakers loathe to meddle with the giant retirement system.

Bush wants to let younger workers take part of the Social Security taxes they now pay and invest the money in private accounts. Democrats say the proposal would enrich Wall Street bankers while further weakening the solvency of Social Security.

In 2018, Social Security will start paying out more in benefits than it collects in payroll taxes. In 2042, the system will be able to cover 73 percent of promised benefits, according to Social Security's trustees.

Bush said the country can't afford to wait any longer to fix the problem.

``The crisis is now,'' the president told the economic forum.

On the spending side, Bush is moving toward holding programs Congress must approve annually _ except domestic security and defense _ to the same $388 billion they received this year, say congressional aides and lobbyists speaking on condition of anonymity. The part of the budget he would restrict also excludes automatically made payments like Medicare and interest on the federal debt.

The president has yet to make final decisions on the $2.5 trillion budget he will send Congress in February, administration officials say. Even so, he and his aides have made it clear that domestic programs will be squeezed.

I look forward to working with Congress on fiscal restraint,'' the president said. ``And it's not going to be easy.''

House and Senate aides, speaking on condition of anonymity, said the White House was considering cutting such programs as housing, grants for community development, purchases of new equipment for the Federal Aviation Administration, and Army Corps of Engineers water projects.

Even the National Aeronautics and Space Administration, an administration favorite, was facing an increase of just 1 percent, pending appeals to the White House by outgoing NASA Administrator Sean O'Keefe, a lobbyist said.

The zero-sum game that is federal budgeting means that if spending for next year is held flat, for every dollar increase that administration favorites like education or veterans receive, another dollar must be cut elsewhere. Even a program receiving the same as this year would lose purchasing power due to inflation, now running about 3 percent annually.

Bush's spending blueprint would be among the toughest for domestic programs since President Reagan's budgets of the 1980s. Overall domestic spending has grown every year but three since 1987 _ in 1995 and 1996, when Republicans first recaptured Congress, and in 2000, immediately after a one-time influx of U.S. aid to help poor and debtor countries.

The growth of domestic programs slowed to about 1 percent this year. Even so, overall expenditures including defense and domestic security continue to climb, largely due to the costs of wars in Iraq and Afghanistan.

Congress approved $87.5 billion for those wars in fall 2003 and $25 billion more last spring, and Bush is expected to request another $75 billion to $100 billion early in 2005.

As word of Bush's still-evolving plans for domestic spending has seeped out, it has cheered conservative Republicans. They spent much of Bush's first term criticizing him for letting spending grow too rapidly and pressuring congressional leaders to try clamping down on spending.

Excluding homeland security and emergencies like hurricanes, domestic spending has grown by 27 percent since Bush took office in 2001.

``I really do believe that this White House gets it,'' said Rep. Mike Pence, R-Ind., a leading House conservative.

Last February, Bush proposed a 0.5 percent increase for domestic programs, which Congress eventually doubled. Democrats and many moderate Republicans are certain to fight for their priorities when Congress begins translating Bush' budget proposal to actual spending legislation next year.

``This tells you the administration's priority is tax cuts over fiscal responsibility and providing central services to the American people,'' said Thomas Kahn, Democratic staff director of the House Budget Committee.

Last May, the White House budget office distributed a memo to federal agencies warning them to anticipate an overall domestic spending cut of about 0.7 percent next year. At the time, White House officials called the document an early step in the budget process.