Bush's Budget gamble

Treasury Secretary Paul O'Neill has a tough sell

by BBC News Online's North America business reporter David Schepp

President George W Bush has presented his first budget for the US government.

When he unveiled his plans at a joint session of Congress on Tuesday night, he talked a moderate game. But the details are following conservative principles, true to his Republican party's heritage.

The losers of last November's elections, the Democrats are now decrying the president's proposal.

They say Mr Bush's 10-year tax-cut scheme is skewed towards the rich and could force the government back into deficit-spending if the economy continues to sour.

It is a charge that Bush's treasury secretary, Paul O'Neill, has called "ridiculous". But it still underscores the challenges that lay ahead for Mr Bush as he tries to convince Congress to pass his $1.6 trillion tax-cut plan.

Perhaps realising how contentious his budget proposal is, Mr Bush has changed his tack from previous Republican leaders such as Ronald Reagan and Newt Gingrich, who painted government as the enemy of the American people.

In a conciliatory tone, he noted that "government should be active, but limited. Engaged, but not overbearing". His proposal to substantially increase education spending stands in stark contrast to Mr Reagan's desire to abolish the Department of Education.

Appearing populist

Mr Bush's call for an active yet restrained government is part of a plan to appeal broadly to the American public. Fearing a backlash for appearing uncompassionate, Mr Bush has taken a populist stand in acknowledging that government has a role.

It is also an attempt to woo minority voters who sometimes perceive efforts to roll back government programs as a threat.

In addition to calling Mr Bush's tax cut fiscally irresponsible, Democrats have also accused the president of employing fuzzy math in his plan to fund Social Security, the US pensions plan.

They have also criticised the president's school-voucher program, which they say will pull money from the school systems in most need.

Democrats would rather see the money go directly to the schools.

Squeeze on other programmes

The administration is calling for an 11% increase in the Federal budget for education (although most education funding is taxed locally).

And there is more money for defence, especially in order to fund the new missile defence system.

But 10 other departments or agencies face budget cutbacks to fund these new programmes, including the Environmental Protection Agency and the Labour Department, which funds job training programmes.

Nasa's space programme is also facing cuts.

Overall, spending is set to grow by 5.5% to $1.96 trillion next year, less than the 8.6% growth in this past year's budget.

"It's going to be very difficult to deliver a large number of votes for this particular plan," said Michael L. Mezey, the dean at DePaul University in Chicago.

Tax cuts favour the rich?

A group allied with the Democrats said Mr Bush's tax cuts are targeted to help the wealthiest taxpayers.

According to the Citizens for Tax Justice, a pressure group that seeks fair taxation for the poor and middle class, more than 60% of Bush's proposed tax cuts would go to the richest 10% of Americans.

60% of taxpayers, those earning less than $44,000 a year, would get just 12.7% of the money the president plans to set aside for tax cuts, the pressure group says.

Another example shows the bottom 20% of taxpayers would see an average tax cut of $47 a year, while those in the top 1%, who earn more than $373,000 a year, would see their taxes reduced by $54,480.

'Playing with numbers'

In response to such criticism, Treasury Secretary O'Neill said the group was "playing games with the numbers''.

So far, Mr O'Neill has failed to provide his own numbers, but he says that "it doesn't seem to me legitimate to even try to respond to a question that is based in a fiction of combining, not just income taxes, but payroll taxes and cobbling up a bunch of other pieces of stuff to make a populist point that has no basis in fact.''

"The fact is, what the president has proposed for tax changes moves the incidence of taxes proportionately to the higher-income group, not the lower-income,'' says Mr O'Neill.

Regardless of the rhetoric from either camp, the fact remains that the president's budget plans will undergo much scrutiny and changes as they make their way through Congress.

It is a process that could take weeks or months.

Meanwhile, the weak economy could eventually overshadow the debate. The massive surplus that everyone is counting on is based on an assumption that the US economy will grow by over 3% per year for the next 10 years.

But this week the government announced that at the end of last year, growth had fallen to only 1.1%.