Bush tax cuts' fate hangs in balance

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Democrats said President Bush's new budget is a "missed opportunity" to find common ground, but they are left with few good alternatives other than tax increases if they hope to boost spending and match the president's goal of balancing the budget by 2012.

It took an independent, Sen. Joe Lieberman of Connecticut, who called for a new "war on terrorism tax," to broach the issue of tax increases.

"People keep saying that we're not asking sacrifice of anybody but our military in this war, and some civilians who are working on it," said Mr. Lieberman, a former Democrat who supports the war in Iraq. "When you put together the [Department of Defense] budgets with Homeland Security budgets, we need to ask people to help us in a way that they know when they pay more it will go for their security."

But he exposed the key question that will lie beneath this year's budget debate: Can the government expand the war in Iraq and continue Mr. Bush's 2001 and 2003 tax cuts while increasing spending and bringing the budget into balance by 2012?

Mr. Bush on Monday sent Congress his $2.9 trillion budget for fiscal 2008, which begins Oct. 1. It includes a 1 percent increase in basic domestic spending, a giant boost for defense spending and a request for more than $93 billion in emergency war spending for the rest of 2007 -- all while bringing the budget into balance in 2012.

Democrats said Mr. Bush makes wrong assumptions on future tax revenue, such as the Alternative Minimum Tax, but admitted they will probably make the same choices when they pass their own budget so they can also show a balance by 2012, and so they can compare "apples to apples" with Mr. Bush.

Democrats also will have to decide whether to show continued costs for the war past 2008 -- something Mr. Bush does in a cursory manner -- and whether to plan on having Mr. Bush's 2001 and 2003 tax cuts expire in later years, which would help government revenue but would put them on a collision course with the president.

Mr. Bush, stumping for his budget at Micron Technology Inc.'s plant in Manassas, said Congress should choose the path of lower taxes.

"Step One to balancing the budget is to keep taxes low," the president told company employees. "As a matter of fact, not only do I think we ought not to raise them, I think we ought to make every tax cut we passed permanent."

Stepping out from behind the lectern and hefting a foot-thick stack of congressional reports, which Congress uses to attach add-ons to spending bills, Mr. Bush challenged lawmakers to drop most pork-barrel spending projects called earmarks.

Meanwhile, the Congressional Budget Office yesterday said if Congress passes the new war-spending bill for 2007, but does not otherwise increase spending before October, the deficit will drop to about $200 billion this fiscal year. That's down from the actual 2006 deficit of $248 billion, and lower than the administration's $244 billion projection for this year.

House Ways and Means Committee Chairman Charles B. Rangel, New York Democrat, said there is a chance to work together with the president, but that Mr. Bush will need an attitude change.

"It sounds to me like this is pre-campaign talk," Mr. Rangel said of Mr. Bush's call to make the tax cuts permanent. "I just want someone at the White House to know that Democrats won and we want to work with Republicans."

Still, Democrats said they see no need to rush to put forward their own solutions to big budget problems such as Social Security, arguing Mr. Bush himself still hasn't come to the table with a serious proposal.

House Majority Leader Steny H. Hoyer, Maryland Democrat, challenged Republicans: "Why is it our turn when it was your turn and you didn't do something?"