Bush policies limit next president's options

By Andy Sullivan - Analysis

WASHINGTON (Reuters) - When President McCain or President Obama takes office next year, he will inevitably find George W. Bush's budgetary legacy haunts the White House.

Bush will leave record budget deficits, a sluggish economy and rising health-care and retirement costs that are likely to constrain his successor's ability to pursue his own policies, analysts say.

Democratic candidate Barack Obama has outlined a range of ambitious programs, from rebuilding the nation's bridges to extending health care to the nation's 47 million uninsured, that could cost hundreds of billions of dollars.

Republican John McCain hopes to make Bush's 2001 and 2003 income-tax cuts permanent, cut the corporate tax rate and simplify the tax code. These measures could dramatically slash federal revenue.

"While each of them is running on one agenda, whoever wins, the day they enter office another is going to be presented to them," said Maya MacGuineas, president of the Committee for a Responsible Budget and a budget expert with the New America Foundation.

BUDGET

The U.S. budget deficit burgeoned under the Bush administration because of several rounds of tax cuts that slashed revenue while the government pursued wars in Iraq and Afghanistan that cost $11 billion a month.

Bush could leave his successor a record $500 billion budget deficit, compared with the $128 billion surplus he inherited when he took office in 2001.

Under Bush, the national debt has nearly doubled to $10 trillion. That requires interest payments of roughly $200 billion each year -- more than any other single category of government expenditure except defense, the Social Security retirement fund and Medicare for the elderly.

With the budget already stretched, finding revenue for new spending programs or to offset further tax cuts could be especially difficult.

ECONOMY

The next president will inherit a sluggish economy hobbled by high energy prices and a housing slump, brought on in part by the Bush administration's drive to expand home ownership.

Hard times for businesses and consumers means the government collects less tax revenue. Revenue from taxes on corporations dropped 14 percent over much of last year and tax revenue from workers' paychecks recently has been flat, according to a research note by Goldman Sachs.

McCain has proposed a gas-tax holiday over the summer and other tax cuts to boost the economy. But he will probably have a hard time getting them through a Congress expected to remain under Democratic control.

Obama has said he might defer his proposed tax increases on the wealthy if the economic picture remains grim.