Bush's Tax Cuts Amid $521bn Record Deficit

President Bush, facing a record-breaking federal deficit of $521bn (£287bn) this year, yesterday delivered a $2.4 trillion budget for 2005, providing further ammunition for critics accusing the White House of dangerous financial mismanagement.

Mr Bush said the spending blueprint advanced "our three highest priorities" of winning the war on terrorism, strengthening homeland security and revitalising the American economy.

Aware of the mounting pressure from Democrats in an election year, the budget proposes a squeeze on spending across a wide range of government agencies.

Spending on defence, in contrast, will rise by 7% and on homeland security by 10%.

There will be cuts at seven cabinet-level departments, including transport, agriculture and, controversially, the environmental protection agency.

The president forecasts that the deficit will fall to $364bn in 2005, but the ability of the White House to reach that target was immediately questioned by Democrats.

Kent Conrad, the highest-ranking Democrat on the Senate budget committee, described Mr Bush as the "most fiscally irresponsible president in our nation's history".

"The president wants to go to Mars, and he's got deficits going to the moon," he said.

Mr Bush refused to apologise for the size of the spending gap. "The reason we are in deficit is we went through a recession, we were attacked and we are fighting a war. These are high hurdles for a budget and a country to overcome."

The president added: "As the economy gets better we will be able to send up a budget that cuts the deficit."

The increase in military spending does not include the money needed to maintain troops in Afghanistan and Iraq, and the administration will return to Congress with a request for a supplemental budget after the election in November. In the current year, Congress approved a wartime supplement of $87.5bn.

The 2005 plan proposes an increase in spending of 3.5%. But it assumes an increase in tax revenues of 13.2%, dependant on an improving economy. The White House maintains that a steadily improving outlook will cut the deficit to $237bn in 2009.

The non-partisan congressional budget office warned last month instead that the deficit could spiral to $2.4 trillion over the next 10 years owing to tax cuts and rising spending on health care.

Some analysts fear that the size of the federal budget deficit could stall economic growth as the pressure to attract investors in US bonds, the chief means by which the treasury can raise money, pushes interest rates up.

Higher interest rates, in turn, would put the brakes on the wider economy, flattening the booming equities and housing markets and leaving consumers with less to spend. Federal Reserve chairman Alan Greenspan and the International Monetary Fund have both raised alarms over the Bush administration's spendthrift tendencies.

The budget proposal now enters months of debate in Congress. Senate Democrat leader Tom Daschle said: "The administration pledged its tax cuts and policy choices would not turn record surpluses into record deficits, but this budget shows that's exactly what's happened." Democrats are vehemently against the Bush ad ministration's proposals to make its tax cuts of 2001 and 2003 permanent. The cuts are scheduled to cost $1.7 trillion and be phased out by 2010.

Democrats have broadly criticised them as a sop to corporations and the wealthy, and some of the candidates vying for the presidential nomination have promised to repeal at least part of the cuts.

The budget allows for only a $1bn increase in Nasa funding, despite the manifesto pledge for a manned mission to Mars.