Bush Sees a Deficit as U.S. Economy Slows

WASHINGTON -- U.S. President George W. Bush acknowledged Monday that a slowing U.S. economy would lead to a higher budget deficit this year and next, as he unveiled a $3.1 trillion fiscal 2009 spending plan that would boost military funding but nearly freeze many domestic programs.

The budget makes military spending and the Iraq war its centerpiece, proposing a 7.5 percent increase for the Pentagon to $515 billion. On top of that, Bush also sought $70 billion more for the conflicts in Iraq and Afghanistan.

Bush forecast a budget deficit of $410 billion for the fiscal year 2008, which ends on Sept. 30, and $407 billion for fiscal 2009.

Those deficits are more than double the $162 billion gap in 2007 and will approach the $413 billion all-time high for the deficit hit in 2004, which was a record in dollar terms.

"The primary reason for increasing deficits in the near term is the president's economic growth package and an expected slowing of receipt growth, because of an expected reduction in corporate tax receipts from recent high levels," the budget document said.

With the economy possibly teetering on the brink of a recession, revenues are expected to suffer, reversing a trend of the past three years in which annual deficits declined.

A promised $150 billion stimulus package of tax rebates would add to the deficit, at least in the short term, and funding for the Iraq war is another source of red ink.

"The economy is suffering a significant cyclical setback," said Ed McKelvey, an economist with Goldman Sachs in New York.

While many -- if not most -- of the priorities of the Bush budget will be jettisoned by the Democratic-led U.S. Congress, the unveiling of the document promises to trigger a new round of sparring over Bush's fiscal policies and his economic legacy.

"This president will be known as one of the most fiscally irresponsible in history," Kent Conrad, chairman of the Senate Budget Committee, said in an interview before Bush unveiled the budget.

"He is taking a shot at the middle class," said Conrad, referring to proposals such as cuts in a program to help the poor pay their heating bills and suggestions for reining in the Medicare health program for the elderly.

Bush has taken heat even from some of his fellow Republicans for allowing spending to rise sharply on his watch, but with the arrival of a Democratic-led Congress last year, he has emphasized a tougher approach on spending and vetoed several budget bills last year.

Conrad said even more worrisome than the higher annual deficits was a jump in the national debt to $9 trillion from about $5.6 trillion when Bush took office in January 2001.

Interest on the debt will total $234 billion this year, according to the Congressional Budget Office.

That amount is higher than the $193 billion in spending Bush has proposed for the Iraq and Afghanistan wars for 2008.