Friday August 3 1:42 PM ET

Congress, Bush Face Budget Showdown in Fall

By Vicki Allen

WASHINGTON (Reuters) - Congress will rest up in August for what could be one of its most bitter, divisive budget battles as the effects of President Bush's tax cuts and a slowing economy hit the federal treasury.

Later this month, while lawmakers take a month-long break, the Congressional Budget Office will release its forecast, which many analysts believe will show dwindling surpluses and may show
that spending bills moving through Congress already are eating into Medicare reserves.

``They are staring deep into the abyss of a return to deficits,'' said Marshall Wittmann, congressional analyst with the Hudson Institute. ``Ultimately the president will take the fall if that
happens.''

At stake is the pledge made by Bush and his fellow Republicans that the nation could afford a $1.35 trillion, 10-year tax cut while it overhauled the military and public schools, covered prescription drugs under Medicare, paid off most of the national debt, and protected trust funds of the Social Security and Medicare retirement programs.

Instead, the slowing economy, combined with tax rebates this year and next, have already put the government on the brink of tapping Medicare and Social Security reserves, and visions of big new programs are dimming.

When Congress returns in September, analysts predict an unprecedented scramble for remaining dollars, with the Republican president, Republican-controlled House of Representatives and
Democratic-controlled Senate lobbying for a tangle of often competing interests.

``I can't figure out what the compromise would be that would satisfy everybody and get them out of there,'' said Stanley Collander, of Fleishman-Hillard corporate consultants.

[snip]

Unless surpluses are larger than expected, Republicans may have to choose between draining Medicare reserves, which could alarm seniors, or scrimping on a promised defense buildup, which could anger another part of their political base.

``Promises are going to have to be broken and the question is whose promises,'' said Robert Reischauer of the Urban Institute. ``You're going to see both parties split asunder,'' he said, in
disputes over safeguarding the seniors' programs and spending more for the military and schools.

``The question is not whether they go into Medicare, it's who gets blamed for it,'' Collander said.

[snip]

Democrats plan to hammer on the Medicare issue during the recess, accusing Republicans of endangering the seniors' health care program to help pay for tax cuts.

But since they control the Senate, Democrats may end up sharing the blame if Social Security and Medicare are raided while their priorities such as education are not fully funded.

[snip]

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