Bush Wednesday signs bill with $39 billion in cuts.
His 2007 budget would point to more cuts ahead.

ABC NEWS / The Christian Science Monitor
By Linda Feldmann

WASHINGTON - With President Bush's signature Wednesday, Medicaid recipients can expect higher copayments and deductibles. College students may face higher interest rates on student loans, as lenders are squeezed. Work requirements for women on welfare are likely to be tightened. Federal aid to states for child-support enforcement will be curtailed. 

All told, the US government will save $39 billion over the next five years under the Deficit Reduction Omnibus Reconciliation Act of 2005. The legislation is the first in a decade to rein in the growth of entitlement programs. And, along with a plan for $70 billion in tax cuts moving through Congress, it provides the backdrop to a fierce debate over government priorities with the unveiling this week of Mr. Bush's budget proposal for fiscal year 2007.

 In short, the Bush administration faces competing pressures to bring down the budget deficit, keep the nation safe, foster economic growth, and maintain popular social safety net programs. In an election year, the task grows only more difficult.

 The stark reality is that Bush is asking for budget savings from Medicare, education, transportation, and agriculture as he seeks to cut taxes. Can the administration pull it off? The answer goes to the core of different government philosophies of the two parties.

 "Republicans believe the poor and everyone else benefit from a growing and thriving economy, which is fed by capital investment," says Republican pollster Whit Ayres. "Democrats believe that the poor are best served by larger and larger government payments. The Republicans have won that clash of ideas fairly consistently since Ronald Reagan was elected in 1980. There's no reason to think they can't win that same argument again."

 The proposed $2.77 trillion budget would boost Pentagon spending by almost 7 percent, and also increase the budgets for the Departments of State, Veterans' Affairs, and Homeland Security. The budget would cut $182 billion over five years in areas outside of defense and homeland security.

 Critics argue that the tax cuts built into the budget plan - $285 billion over five years, not including an expected extension of the Alternative Minimum Tax - would more than negate the savings from cuts to domestic programs, which largely benefit low- and middle-income Americans. 

Among entitlements, Bush proposes a plan to slow the growth of Medicare, which provides health insurance for senior citizens, saving $36 billion over five years. The budget also contains new cuts to Medicaid, which provides health insurance to the poor and disabled, by shifting some costs to the states, which in turn may reduce eligibility or benefits.

 From Social Security, the budget proposes benefit reductions that would save $2.2 billion over five years, including an end to the lump-sum death benefit, according to the Center on Budget and Policy Priorities (CBPP).

 In its early budget analysis, the CBPP identifies cuts to hundreds of programs. Among those targeted for elimination:

-- The Commodity Supplemental Food Program, which provides food packages for some 400,000 low-income seniors. 

-- A preventive care block grant, which helps states provide preventive healthcare for "underserved populations." 

-- The TRIO Talent Search program, which helps colleges and universities assist disadvantaged teenagers so they can finish high school and go to college.

 Among programs facing major cuts, according to CBPP: 

-- Section 202 housing for low-income elderly, which would be cut 26 percent below the 2006 level.

 -- Section 811 housing for low-income people with disabilities, which would face a 50 percent cut. 

-- A 79 percent cut for Community Oriented Policing Services, which aims to put more police on the streets. 

-- Child Care and Development Block Grant, which would face more than $1 billion in cuts over five years. CBPP reports that by 2011 the number of children receiving child-care assistance would drop by more than 400,000, compared with the 2005 figure.

 "There's a fairness issue here," says Isabel Sawhill, a senior fellow in economics at the Brookings Institution. "We're basically cutting programs that serve low-income families and the middle class in order to pay for tax cuts that go overwhelmingly to the very wealthy. Even some Republicans have been uncomfortable with that."

 The Republican Main Street Partnership, a collection of moderate GOP governors and members of Congress, is withholding judgment on the president's budget blueprint for now, over concerns it could hurt the poor. "Obviously, in an election year, we don't want to see that happening," says executive director Sarah Chamberlain Resnick. 

The Bush White House says programs slated for cuts or elimination are ineffective, and that there are other ways to help the poor, such as through programs supported by Bush's faith-based initiative.