Bush's $3.1 trillion budget projects $400 billion deficit

President Bush delivered his final budget to Capitol Hill Monday, with total federal spending topping $3 trillion for the first time and budget deficits projected to hit $400 billion this year and next for the first time since 2004.

Bush's $3.1 trillion fiscal 2009 budget projects a surplus in fiscal 2012, as he promised last year, as the short-term effects of the economic stimulus package are erased by spending cuts and higher tax receipts as the economy recovers. The budget makes no allowance for the cost of preventing the alternative minimum tax from hitting more middle-class taxpayers beyond a temporary patch for the 2008 tax year, as well as costs associated with the wars in Iraq and Afghanistan beyond a $70 billion installment for fiscal 2009. Democrats said those omissions -- plus spending cuts they are unlikely to enact -- add up to a budget that is unrealistic and largely dead on arrival.

"This budget will be quickly forgotten," Senate Budget Committee Chairman Kent Conrad, D-N.D., said in a statement.

Bush said the two principles guiding its development were "keeping America safe and ensuring our continued prosperity." To that end, Bush would boost security-related funding, including the Defense and Homeland Security departments and international affairs by $44.9 billion over last year, an 8.2 percent increase. By contrast, nonsecurity discretionary spending would grow by 0.3 percent, with cuts proposed for six Cabinet departments and the EPA. That includes popular programs such as low-income heating assistance, which faces a 17 percent cut, and state and local law enforcement grants, slated for a 61 percent cut.

Senate Commerce-Justice-Science Appropriations Subcommittee Chairwoman Barbara Mikulski, D-Md., called that figure "staggering" at a time when violent crime is on the rise.

Bush also calls on Congress to permanently extend his 2001 and 2003 tax cuts, set to expire in 2010.

"Above all, my budget continues the pro-growth policies that have helped promote innovation and entrepreneurship. I will not jeopardize our country's continued prosperity with a tax increase," Bush said.

Extending the tax cuts would cost about $2 trillion over the next decade, although tax receipts would still grow at a healthy clip, adding nearly $1 trillion in revenues during that period. A series of reductions in mandatory programs, primarily Medicare, serve to lower deficits in the out years, although many in Congress are likely to find them politically unpalatable.

Bush is proposing about $619.4 billion in net mandatory program savings -- assuming some increases, including $50 billion more for the State Children's Health Insurance Program over 10 years. The largest reduction comes from Medicare, where Bush proposes to cut $556.4 billion from its rate of growth over the next decade. Medicaid would take a $46.7 billion hit.