Bush budget would nearly freeze domestic spending

WASHINGTON (Reuters) - President George W. Bush will propose freezing most domestic spending in his upcoming 2009 budget and will seek big cost savings from government health care programs, a U.S. official said on Thursday.

In a more than $3 trillion budget to be unveiled on Monday, Bush wants to limit to less than 1 percent increases in spending on discretionary programs like transportation and education, but excluding national security, the official said.

He will try to extract some $178 billion in savings from Medicare, the health care program for the elderly and disabled, in part by freezing the reimbursement rates for health care providers for three years and requiring wealthier Americans to pay more for prescription drugs.

He will also seek $17 billion in savings from Medicaid, the health care program for the poor, according to the official, who declined to be named because the budget has not yet been submitted to Congress.

Bush has been criticized by some members of his own Republican party for tolerating big spending increases in the first several years of his administration. On his watch, the budget shifted from surpluses to deficits that reached a high of $413 billion in 2004.

In the last three years, the deficits have narrowed but that is about to change. The budget is expected to forecast deficits of $400 billion for both 2008 and 2009.

And Congress is considering a $150 billion economic stimulus package -- backed by Bush -- that would give Americans tax rebates in an effort to ward off a recession. The package would further add to the deficit.

Bush's proposed cuts to the health programs drew immediate fire from Democrats who said they were targeted at the wrong people.

"The president's cuts are exactly the wrong medicine when the cost of health care and the number of uninsured continue to rise and families are feeling economically insecure," said House of Representatives Speaker Nancy Pelosi, a California Democrat.

The budget to be unveiled on Monday will fund government operations for the 2009 fiscal year which begins October 1.

(Reporting by Jeremy Pelofsky, editing by Philip Barbara)