Overview:
President Bush submitted his $2.23 trillion budget for Fiscal Year 2004, representing a 4.16% increase in spending from the 2003 estimates. Bush proposes a $307-billion deficit (a record, if not adjusted for inflation and GDP growth). The political problems for passing this blueprint through Congress come from all sides.
1) Descending into deep deficits makes many Republicans uneasy, especially shortly after the Clinton Administration enjoyed high surpluses. But conservatives are also reluctant to buck the President.
2) Democrats are excited about the thought of campaigning in 2004 against the deficits. However, when they tried this in 2002, they found that they could not adhere to any alternative: neither spending cuts nor tax increases. Their hope this year is to attack Bush's new "growth package" as a tax cut for the rich. Still, it is not clear the Democrats can find any way to make the budget deficit hurt Bush.
3) Conservatives are not happy with the President's proposed hike in education spending. However, Bush offsets this increase with freezes and small cuts in other areas of domestic spending.
4) In the document, Bush blames the large deficit on a "recession and a war we did not choose," and Budget Director Mitch Daniels says the deficit is small compared to the overall budget (13.6%) and compared to the $10.5-trillion U.S. economy (3%).
5) The White House has called for $390 billion in defense spending, but this does not include the added costs the military will incur from a likely war with Iraq. It also does not include any costs that might result from another terrorist attack. Homeland Security spending increases 5.5%, while all other discretionary spending goes up 3.8%.
6) Between Democratic cries for greater social spending, individual lawmakers' requests for earmarks, and the unstable nature of the war on terrorism and the pending war with Iraq, keeping the price tag under $2.24 trillion will not be easy.
Taxes:
On taxes, Republicans are mostly unified on speeding up expansion of the child tax credit and the rate reductions. The debate arises over dividend and retirement savings taxation.
1) President Bush refused to back down on his plan to abolish taxation of individual dividend income. He had received pressure to do so from all sides.
2) Sen. John Ensign (R.-Nev.) is pushing a bill to allow taxpayers to deduct Social Security taxes from their taxable income. Although he is not openly marketing it as such, many Republicans on the Hill see it as an alternative to the dividend tax provision. The view is that it will be politically easier.
3) On the issue of retirement savings, Bush is receiving resistance from one of his most loyal foot soldiers in Congress. Rep. Rob Portman (R.-Ohio), who has championed expanding IRAs, wants to speed up the rate at which the annual contribution limits will rise, and to delay the age at which investors must start drawing down their accounts.
4) Portman prefers that approach to Bush's new measure: drastic overhaul of tax-favored pension plans, creating larger retirement savings accounts and lifetime savings accounts. The cool reception among Republicans to the Bush plan is in large part due to the perception this idea came out of the blue.
5) Republicans on Capitol Hill seem partial to the Portman plan, in part because it is less vulnerable to charges that the GOP is trying just to help out the rich.
Democratic Presidential Candidates:
The Democratic race for the 2004 Presidential nomination is heating up, with worries inside the party rising over an uncertain process.
1) Rep. Richard Gephardt (Mo.) traveled to Iowa last week after officially entering the race. Gephardt's visit to the crucial state will come after a handful of other contenders meet with the state's Democrats.
2) Gephardt's good name with labor unions may not prove to be as helpful as he suspects because none of the current candidates is out of favor with labor. Union support will not hurt, but the former minority leader will find it tough to paint himself as the workingman's candidate amid the current field.
3) All of the Democrats are having trouble finding footing on the issue of war. With the exception of Sen. Bob Graham (Fla.) all the senators in the scramble voted for the authorization of force. Former Vermont Gov. Howard Dean says these senators lack credibility in attacking Bush's war plans. Graham and Rep. Dennis Kucinich (Ohio) might be the contenders who can best parlay war objections into political gain.
4) Democratic insiders are looking at the steady upward climb of primary dates toward an uncertain outcome. So far, eight states have scheduled their primary elections for February 3.
