Bush's fiscal folly.

Byline: The Register-Guard

President Bush and his cronies in Congress are playing musical chairs with money for vital domestic programs. Guess who'll be left standing when the music stops in 2006?

According to estimates by the nonpartisan Center on Budget and Policy Priorities, children enrolled in Head Start and other educational programs for the disadvantaged will be left behind to the tune of about $925 million. Students who depend on financial aid to attend college will see Pell Grants and other assistance cut by about $550 million.

But the real stunner is that the wartime president's 2006 budget guidelines call for cuts of $1.5 b-b-billion in veterans' medical care. Thanks for giving the nation your leg, Sergeant Jones, but we've run out of money for your physical therapy treatments.

What's behind this monetary madness? Two words: tax cuts. Fiscal conservatives love Bush's tax cuts and support his obsession to make them permanent. To avoid being seen as profligate budget busters, they must insist that the White House demonstrate tightfisted fiscal restraint.

Hard into his re-election campaign, Bush is feeling the heat for the ballooning federal deficit, which the Congressional Budget Office estimates will hit $480 billion this year. So he directed his Office of Management and Budget to cut 2006 funding for almost all agencies in charge of domestic programs.

Unfortunately, discretionary domestic programs represent only about one-sixth of federal spending. Defense and homeland security are off limits; so are the entitlement programs such as Social Security and Medicare, with its enormously expensive prescription drug benefit.

In addition, the ongoing supplemental appropriations for the war in Iraq continue to exacerbate the deficit, and they aren't even included in the basic budget.

The result is that Bush has decided to force domestic agencies to bear an unfair budget reduction that will punish millions who rely on those programs. At the same time as he slashes money for veterans' medical care, he stubbornly insists that Congress make permanent tax cuts that will save an average of $109,000 for anyone with an income over $1 million.

The greater wrong in this approach is that it is all for show. Even these savage cuts yield only $21 billion in savings, barely a dent in the deficit. Contrast that with the $32 billion in tax cuts Bush is pushing for the millionaires.

Bush's argument that the tax cuts have stimulated the economy may be true in the short run. But rigorous analysis by the Urban Institute-Brookings Tax Policy Center shows that in the long run, a substantial majority of American households will be made worse off by the tax cuts, because of simple arithmetic: The cuts are being financed with borrowed money that must someday, somehow be repaid.

The negative impact results from the structural change in the tax system caused by the cuts. The tax cuts reduce or eliminate many of the most progressive elements of the federal tax system, including the estate tax, the taxation of capital gains and dividends, the top income tax rates and the phase-outs of certain exemptions and deductions for households with high incomes.

The Tax Policy Center analysis suggests that it is unlikely any method of financing the cuts will be as progressive as the tax code provisions that have been changed or eliminated. Low- and middle-income households would be the big losers; high-income households would make out like, well, bandits.

The weight of the evidence continues to suggest that making the tax cuts permanent is fiscal folly of the first magnitude. Voters mustn't allow politicians to use promising signs of economic recovery to dodge the real questions about the tax cuts:

Who is going to pay for them, and how, and when?