Budget debate looks to elections

President Bush's budget focussed on defence and a stimulus

		BBC News Online's Kevin Anderson in Washington

President George W. Bush renewed calls for additional tax cuts and other measures to stimulate the US economy as he unveiled his $2.13 trillion budget.

While there has been little political distance between Democrats and Republicans in fighting the war on terrorism, the two parties will use the battle over the stimulus and other domestic priorities to highlight their differences as they head into an important election year.

The Republicans hope to retain their control of the House of Representatives and regain control of the Senate, which would greatly help the president pursue his domestic agenda.

More tax cuts

Mr Bush is calling for an additional $591bn in tax cuts spread over the next decade and an acceleration of tax cuts approved as part of last year's $1.3 trillion tax cut.

Democrats blame the tax cut for the return to deficit spending, but the president is undeterred.

Building on patriotic fervour, the budget came in a red-white-and blue wrapper

Two of the reductions, tax cuts for major corporations and higher-income individuals, have drawn fire from Democrats and the bill remains stalled in Congress.

And Democrats quickly criticized the president's budgetary priorities.

Democrat Senator Kent Conrad even used the E-word, Enron, in calling on the government to fully report its debt.

"Enron got into trouble because they didn't fully disclose debt they have, and that is precisely what the federal government is doing," Senator Conrad said.

Stimulus questioned

But as the economy limps toward recovery, some, including Federal Reserve Chairman Alan Greenspan, are questioning the necessity of a stimulus package.

Mr Greenspan said in testimony last week that the economy would recover with or without a stimulus package and that he did not think it to be a priority.

Despite the encouraging signals from financial and non-financial markets, a strong and sustained expansion is far from assured

President Bush

The president's budget estimates growth of 0.7% this year with a return to stronger growth of 3.8% in 2004.

In comparison, the Blue Chip survey of economists predicts a slightly higher growth rate of 1% this year.

But Mr Bush's budget signalled a cautionary note, "Despite the encouraging signals from financial and non-financial markets, a strong and sustained expansion is far from assured."

Mr Bush and his advisors are acutely aware of the cost of indifference in the face of economic pain by voters.

They take seriously the lesson of Mr Bush's father who enjoyed unprecedented approval ratings following the Gulf War only to lose it because of perceptions that he ignored the economic pain of consumers, and they are determined not to make the same mistake.

The bottom line

Presidential scholar Alan Lichtman said that it is difficult to forecast how the debate over the stimulus will affect elections in November due to the war on terrorism and Mr Bush's overwhelming popularity.

If a recovery failed to materialise or the economy tipped back into recession, conventional wisdom would be that Republicans would suffer.

Republicans hope to capitalise on the president's popularity and retake Congress

Before 1982, many spoke of realignment in Congress with Republicans retaking power, but the country languished in a deep recession.

Instead of gaining control of Congress, they sunk further into opposition.

But as the parties come together to fight the war on terrorism, they will draw distinctions on domestic issues in the battle for votes.

In the stimulus debate, Republicans will argue that tax cuts are the right way ahead for the economy while the Democrats prefer social programmes.

But in the end, "it's all about the bottom line, not machinations in Congress," Mr Lichtman said.

Whether American consumers notice an economic upturn in the next few months will help determine many key elections in November and the balance of power in Congress.