Bush budget seeks to rein in entitlements

WASHINGTON, Feb. 7 (UPI) -- Even as President George W. Bush has vowed to cut the U.S. deficit, the looming costs of entitlements -- mainly the big three, Social Security, Medicaid and Medicare -- are threatening to gobble up a larger and larger chunk of federal dollars, but Bush's $2.57 trillion proposed budget for fiscal year 2006 aims to curb runaway spending in some of those programs.

The budget proposes mandatory-program reforms that will achieve savings of about $137 billion over the next 10 years. Bush's goal is to cut the deficit from a 3.6 percent deficit in 2004 to a 1.5 percent deficit in 2009. The administration projects that the 2005 deficit will come in at 3.5 percent of GDP, or $427 billion; in 2006, 3 percent of GDP, or $390 billion; in 2007 the deficit is projected to fall further, to 2.3 percent of GDP, or $312 billion, and so on.

Bush's proposed FY 2006 budget would also enact more than 150 reductions, reforms and eliminations in non-security discretionary programs, which Office of Management and Budget head, Josh Bolten, said would save the U.S. government about $20 billion in 2006 alone.

Overall discretionary spending, even after significant increases in defense and homeland security, will grow by 2.1 percent, which would be less than the projected rate of inflation, the administration said. In non-security discretionary accounts, the president proposes to cut spending by nearly 1 percent -- the leanest proposed budget since the Reagan Administration.

Bolten said a "variety of mandatory programs" would be affected, with reform measures such as reducing agriculture spending; reducing the costs (not the amount of funding available) of the federal student loan program; and cutting Medicaid costs.

While Bolten said that many members of Congress probably wouldn't be happy about the agriculture cuts, he said, "I think a lot of the members will recognize, even those from farm states, that there are savings to be captured."

Bolten called the agricultural reductions "measures that we can take, I think, responsibly, without undermining our farmers, either the big ones or the family farmers, and still dealing with the restrained fiscal situation that we find ourselves in."

Regarding student loans, Bolten said the government is looking to save by reducing the amount of money that is now paid out to "middlemen," but not looking to reduce student funding.

"This creates an opportunity for us to get more money out to students," Bolten said.

The biggest savings the proposed FY 2006 budget aims to achieve is through reforms to the Medicaid program, Bolten said, by closing loopholes for state and individual funding. Bolten said that the Bush administration expects net Medicaid savings of $45 billion over 10 years."This would reduce program cost growth from about 7.4 percent per year for the next 10 years, to about 7.2 percent per year for the next 10 years. In 2006, if the president's budget is approved, Medicaid spending will equal $193 billion, Health and Human Services Secretary Michael Leavitt said Monday in announcing the proposed FY 2006 HHS budget.

"Over the past ten years, Medicaid spending doubled. And this year, for the first time ever, states spent more on Medicaid than they spent on education," Leavitt said.

"We're trying to squeeze the anomalies out of the system, prevent measures that states and private parties have been using to circumvent the system and get federal money to which we believe they're not entitled," Bolten said.

Bolten cited an upcoming Medicaid reform proposal that Leavitt referred to in a speech last week. Among Bush's proposed reforms, Leavitt said, is to get 12 million to 14 million more people covered by health insurance by offering a more basic, affordable version to poorer people.

Regarding Social Security, while Bolten discussed the president's plan to change Social Security to include private investment accounts that Bush says will help to make up the present unfunded liabilities shortfall with investment returns, the budget does not include the transition costs to achieve this change.

"The type of personal accounts the president is proposing will require approximately $664 billion in transition financing over the next 10 years, with an additional $90 billion in related debt service," Bolten said. However, such borrowing is not like other borrowing since it is offset by an increase in savings, he said.

Bottom line, "Social Security needs to be sustainable on its own, and the deficits that it's building up over time, the present value of those is over $10 trillion ... No amount of tinkering with tax increases or discretionary spending cuts can address the fundamental problems of unfunded liabilities in our entitlement programs," Bolten said.

Medicare will see costs rise by about 9 percent per year for the next several years, Bolten said. The prescription drug benefit, while "a very important development," will boost costs, Bolten said. The benefit is to take effect by Jan. 1, 2006.

What's important is to drive down health care costs overall, with measures such as health savings accounts, encouraging market competition between health care providers to provide health care at the best price, investments in health information technology (electronic health care records for all Americans), and medical liability reform, Bolten said.