Debtor Nation

Despite his pledges to curb federal spending, President Bush will leave office next year with an eye-popping federal deficit that tops $400 billion. And that's just one of the shocking revelations in the president's $3.1 trillion budget request to Congress for fiscal year 2009, which the White House unveiled Monday.

The president has proposed to freeze or cut 151 discretionary programs, as well as make drastic reforms to entitlement programs--including a $178 billion cut for Medicare over the next five years.

"Good intentions alone do not justify a program that is not working," Bush said in his budget message.

Most of Bush's proposals are non-starters. A Democratic Congress is going to delay acting on his final budget request for as long as possible. For that reason, the deficit increase is immediately grabbing headlines. For 2008, the federal deficit is expected to soar to $410 billion, up from $162 billion in 2007. The reasons: A projected $146 billion stimulus plan to invigorate the economy, a one-year plan to keep the Alternative Minimum Tax from drastically expanding and reduced corporate tax receipts.

Still, Bush says his proposal will balance the federal budget by 2012. The White House wants to cap non-security discretionary spending at less than 1% growth for 2009, then hold it at that level through 2013. And it plans to drastically reform and cut spending on many discretionary programs, including elimination of Social Services Block Grants and the Perkins loan program. The proposal would also reform the disability insurance program. The White House estimates that these measures would save $18 billion in 2009.

The budget proposes that the 2001 and 2003 tax cuts Bush championed be made permanent. It also includes a $515.4 billion non-war defense budget, a modest increase over last year. From 2001 to 2007, "security spending" (which includes funding for the Pentagon and the Department of Homeland Security) increased 48%, the White House says. The fiscal-year 2009 budget would increase this spending by another 8.2%

Reform of entitlement programs is expected to save $16 billion in 2009 and $208 billion over the next five years, the White House says. As much as $178 billion of this savings would come from Medicare reductions. The president also wants to implement a standard health insurance tax deduction of $7,500 per person, a deviation from the current tax exclusion for employer-sponsored insurance.

In an echo of a past policy failure, Bush proposed that Social Security be reformed to allow workers to use up to 4% of their Social Security earnings to fund personal retirement accounts. The contributions, which would begin in 2013, would be capped at $1,400 during their first year and would be allowed to gradually increase until 2018.

The president's request Monday is the first step in what is likely to be a protracted battle over spending in an election year, when politicians like to ruffle as few voter feathers as possible and demonize opponents as much as they can. If Democrats in Congress don't pass appropriations bills by the Sept. 30 deadline, they can always pass a "continuing resolution" to fund the government at current levels until a new president takes office, and they're betting that person is going to be a Democrat. That gives lawmakers leverage in putting their own budget proposals into place.

In other words, Congress' reaction to this budget will be a gauge of Bush's status as a lame-duck president.