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Bush warns he'll use veto power to cut spending

GOP feuding derails House budget draft

WASHINGTON -- President Bush said yesterday that he would use his power to veto spending bills if Congress does not cut the federal budget as he has asked.

In over five years in office, Bush has never vetoed any bill. But he said that restraining spending is crucial to cutting the deficit in half by 2009 as he has promised. ''If necessary, I will enforce spending restraint through the exercise of the veto," the president said.

Bush's brief statement from the White House's Diplomatic Reception Room was made a day after feuds among rival Republican factions led House GOP leaders to pull a $2.8 trillion budget blueprint from the floor. The collapse of the measure threatens to send Republicans into the fall election season with deficits on the rise and no plan in place to contain them.

In addition, separate talks aimed at extending Bush's previously passed tax cuts for capital gains and dividends stalled. With lawmakers headed home for a two-week recess with few accomplishments to show constituents, the president said Congress must break the logjam.

''Our economy grows when the American people make the decisions about how to save, spend, and invest their money," he said. ''To keep our economy creating jobs and opportunity, Congress needs to show its trust in the American people and make the tax relief permanent."

Bush took on those who oppose the extension of some of those tax cuts, mostly Democrats, saying the lower rates have helped create 5.1 million jobs since August 2003. ''The facts have proven the critics wrong 5.1 million times over," the president said.

The budget measure's demise was the result of opposition among moderates and a power struggle between a faction of conservatives and the House Appropriations Committee. Republican unity was essential to passing the plan, because no Democrats were expected to back it.

The episode embarrassed the newly overhauled House GOP leadership, which is trying to demonstrate to voters that it's cracking down on spending.

The House Democratic leader, Nancy Pelosi of California, called it ''a great day for the American people."

''The Republican Party was forced to pull its immoral budget from the floor," she said.

The budget resolution is a nonbinding blueprint that establishes lawmakers' tax and spending priorities. It sets the outlines for subsequent bills that cut or raise taxes and spending. With Republicans anticipating a mostly stand-pat year -- with no major tax cuts on the agenda and efforts to cut benefit programs iffy at best -- passing a budget plan isn't critical.

Republican leaders vowed to mend their rifts over domestic spending, procedures for passing disaster aid, and earmark ''reform" after returning from the two-week break, but the measure's chances of House passage then may be slim.

And even if the House ultimately is successful in passing it, difficult talks would loom with the Senate.

The tax legislation, left over from last year's agenda, may face better chances for completion. The bill, allowing $70 billion in tax cuts over five years, could carry two priorities of tax writers and GOP leaders -- a capital gains and dividends tax cut extension through 2010 and a patch to prevent millions more families from paying the alternative minimum tax this year.

Without action, as many as 19 million taxpayers could owe the alternative minimum tax, a trap for wealthy tax dodgers that increasingly threatens less wealthy families with higher taxes.

In addition, the 15 percent top capital gains and dividends tax rate would increase in 2009, rising to 20 percent for capital gains and rates as high as 39.6 percent for dividends.

Other expired or expiring tax breaks also need to be extended, including a business research and development credit.

This year's House budget plan reflected election-year realities and dropped Bush's proposed cuts to Medicare, Medicaid, crop subsidies, and other politically sensitive programs. After passing a five-year $39 billion bill cutting Medicare, Medicaid, and student loan subsidies last year, the new budget proposed just $6.8 billion in savings spread over five years from programs whose budgets typically rise with inflation and population growth.

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