The Pentagon would receive a $36 billion, 8 percent boost for the 2009 budget year beginning Oct. 1, even as programs aimed at the poor would be cut back or eliminated. Half of domestic Cabinet departments would see their budgets cut outright.
Slumping revenues and the cost of an economic rescue package will combine to produce a huge jump in the deficit to $410 billion this year and $407 billion in 2009, the White House says, just shy of the record $413 billion set four years ago.
But even those figures are optimistic since they depend on rosy economic forecasts and leave out the full costs of the war in Iraq. The White House predicts the economy will grow at a 2.7 percent clip this year, far higher than congressional and private economists expect, and the administration's $70 billion figure for military operations in Iraq and Afghanistan is simply a placeholder until the next president takes office.
Bush's lame-duck budget plan is likely to be ignored by Congress, which is controlled by Democrats and already looking ahead to November elections. His long-term projections are mostly academic since he's leaving office next January.
The president forecasts a $48 billion surplus by 2012, keeping a promise he made two years ago when strong revenue predictions made it look far easier. Now, he's relying on spending cuts - for everything from transportation to Medicare and Medicaid to nonprofit groups that help the poor - to do the job in order to keep his signature 2001 and 2003 tax cuts intact instead of expiring at the end of 2010.
"Our formula for achieving a balanced budget is simple: create the conditions for economic growth, keep taxes low and spend taxpayer dollars wisely or not at all," Bush said in his budget message.
Democrats said the forecast of a budget surplus in 2012 was based on flawed math that included only $70 billion for the wars in Iraq and Afghanistan in 2009 and no money after that. The budget plan also fails to include any provisions after this year for keeping the alternative minimum tax, originally aimed at the wealthy, from ensnaring millions of middle-class taxpayers. The Congressional Budget Office estimates that fixing the AMT in 2012 would cost $118 billion, more than double the surplus Bush is projecting for that year.
Jim Nussle, the White House budget director, said the softening economy, continuing war costs and the deficit-financed economic stimulus measure soon to clear Congress were responsible for the worsening deficit picture. And he said that the deficits experienced during the Reagan years and Bush's father's administration were far worse when compared to the size of the economy.
"It's a manageable deficit - it isn't the largest in history by any stretch of the imagination - and it's one that can be managed if we get economic growth back on track," Nussle said.
Bush is leaving his successor an enormous fiscal dilemma. The deficit numbers will mean pressure to allow some tax cuts to expire, especially the 35 percent bracket for wealthy taxpayers, which will revert to 39.6 percent at the end of 2010 unless renewed. Pressure from Wall Street to trim the deficit may cause even Democrats to go after the spiraling growth of Medicare and the Medicaid health care program for the poor and disabled.
"There was an assumption that in the short term that the budget would start to correct and that we could balance in the short term," said Sen. Judd Gregg of New Hampshire, top Republican on the Budget Committee. "But with the stimulus package and with the continuing war costs, that's not going to happen. In fact it's going to get very serious when you're hitting $400 billion deficits."
"We've been able to close the deficit gap with good economic growth, therefore good revenue growth. Those days are coming to an end, and we're going to have to do it the old fashioned way, through real spending discipline," said top House Budget Committee Republican Paul Ryan of Wisconsin.
Bush proposes killing or cutting back sharply 151 programs to save $18 billion next year. Many of those cuts have been proposed and rejected by Congress before, such as moves to eliminate community services grants to nonprofit groups that help the poor, a food program aimed at low-income seniors and grants to help states keep illegal immigrants convicted of felonies in jail. Lawmakers will surely restore proposed cuts to clean water grants, funding for local law enforcement and homeland security grants to states and local governments.
"Today's budget bears all the hallmarks of the Bush legacy - it leads to more deficits, more debt, more tax cuts, more cutbacks in critical services," said House Budget Committee Chairman John Spratt, D-S.C.
Overall, Bush proposes a five-year freeze on domestic programs funded by Congress each year. For 2009, that means just a 1 percent boost in a universally supported food program for poor pregnant women and their children, despite rapidly rising food costs. Health research funded by the National Institutes of Health would be frozen, which is likely to mean fewer research grants.
Some of Bush's proposals are hopelessly unrealistic, such as cutting veterans' medical programs for four years in a row after awarding them a small increase next year. Their costs have nearly doubled during Bush's tenure.
Bush's budget does contain some increases, for abstinence education, Pell Grants for college students from low-income families and grants to school districts. The Food and Drug Administration would get a larger-than-average budget increase to send staff overseas to inspect food and drugs imported into the United States.
Foreign aid would grow by 10.3 percent, to $22.7 billion, with big increases for HIV/AIDS programs, anti-drug and -crime programs in Mexico and Latin America, development aid, and security packages mainly for Israel, Egypt, Colombia and Lebanon.
Funding for the State Children's Health Insurance Program, the subject of an intense battle with Democrats last year, would increase by almost $20 billion over the next five years. That still falls short of a bipartisan plan passed twice by Congress.
The budget proposes eliminating the $283 million federal program to help people make their homes more energy efficient and would cut energy aid to poor households by $500 million, a 22 percent drop over this year's spending. Sen. Jeff Bingaman, D-N.M., called scrapping the home weatherization program "completely wrong headed" at a time of high heating costs.
Seven years ago, Bush took over a government predicted to generate $5.6 trillion in surpluses over 10 years. Those estimates were flawed, but there's no question he's leaving his successor a budget in far weaker fiscal shape than he inherited.
For instance, when he took office the total federal debt held by the public was $3.3 trillion, and some policymakers actually worried that investors might not be able to get their hands on enough federal bonds unless taxes were cut. Now, debt held by the public - including foreign governments - is expected to reach $5.4 trillion this year and $5.9 trillion in 2009, according to Bush's budget submission. Some $2.3 trillion is foreign held.