Bush readies for battle over budget

President Bush says his budget plan is sound

By BBC News Online's North America Business Reporter, David Schepp

On Wednesday, Democrats in Washington will eagerly await the latest budget figures from the White House, which are expected to show the US budget has dwindled to roughly half its expected $380bn (£262.4bn) surplus for the year.

Democrats hope to portray the president as playing fast-and-loose with fiscal policy, as someone who squandered massive surpluses for a politically popular ideal - tax cuts.

President Bush's recently enacted tax-cut plan - as well as the near-year long economic slump - has dramatically reduced the number of dollars flowing into the Treasury's coffers.

[Wednesday's report] will show in plain terms that we have fully funded and will be able to fully fund our nation's priorities

US President George W Bush

Congressional Democrats have charged that the president's massive $1.35 trillion tax cut is unaffordable.

They have pointed to a report released Monday by the Treasury Department that showed the federal government's surplus slipped to a level that would just barely prevent the Bush administration from dipping into funds set aside for Social Security.

The sudden reduction in the surplus is nothing short of breathtaking, especially given that testimony from Alan Greenspan, the US's top central-bank official, in January talked of the danger of an increasing surplus resulting in exorbitant federal-government spending.

At the time, Mr Greenspan said the flow of money into the Treasury would be healthy for some time to come.

Bush fires back

Speaking in Independence, Missouri, on Tuesday, President Bush countered critics' comments by saying his tax-cut scheme was enacted at exactly the right time for exactly the right amount.

Alan Greenspan warned in January that budget surpluses threaten the US economy

It was more than mere symbolism that Mr Bush chose to address budget concerns in the hometown of President Harry Truman, who had a sign on his presidential desk that read, "The Buck Stops Here."

Countering critics, Mr Bush addressed a crowd, saying, "[Wednesday's report] will show in plain terms that we have fully funded and will be able to fully fund our nation's priorities."

He criticised Democrats for inciting alarm, saying the nation's priorities, which include paying down the national debt will be met.

The president also sought to assure the American public that Social Security and Medicare would be protected under his plan.

Media blitz

On Monday in anticipation of Mr Bush's visit to Independence, the Democratic National Committee (DNC), the fundraising arm of the Democratic party, launched adverts challenging the president's commitment to fiscal discipline.

"George W Bush is in Harry Truman's hometown, explaining his budget," the advert said. "And he's got a lot of explaining to do, because the Bush budget violates one of Harry Truman's basic principles - protecting our seniors.

"The Bush budget raids the Medicare trust fund. Now he's using gimmicks to hide a raid on Social Security," it said.

While campaigning for the presidency, Mr Bush said he would do nothing to jeopardise the Social Security and Medicare systems.

In American parlance, Social Security, the nation's retirement and disability programme, is oftentimes referred to as the third rail of US politics.

Politicians are often loath to discuss changing any aspect of programme let alone tapping into the plan's funds to subsidise other forms of government spending.

How big is the remaining surplus?

Figures for the 2000 fiscal year, which concluded on 30 September, show the federal government took in $2.03 trillion and spent $1.79 trillion, resulting in a surplus of $236.9bn for the year.

But the surplus for 2000 is not as large as it seems. Built in to the budget-surplus total are amounts dedicated to Social Security, the nation's retirement programme, and Medicare, the government healthcare scheme for the aged.

After subtracting for those amounts, the budget surplus amounts to a much smaller $58bn.

Critics of the Bush fiscal policies say the president's 10-year, $1.35 trillion tax cut relies on surpluses from Social Security and Medicare, to offset the drop in tax revenues.

According to the chairman of the Senate Budget Committee, Senator Kent Conrad, even that figure is overly ambitious.

Mr Conrad said his figures reveal a surplus of just $18bn once surpluses for Medicare and Social Security and the Bush tax cut are taken into account.