Jan. 3 (Bloomberg) -- President George W. Bush, facing a Democratic congressional majority for the first time in his presidency, promised to send lawmakers a budget plan that will balance federal accounts by 2012.

``Congress has changed,'' Bush said in remarks at the White House following a meeting with his Cabinet. ``Our obligations to the country haven't changed.''

Bush, outlining his agenda for the coming year, gave no hint about the direction he wants to take on the most pressing issue he faces: setting out a new U.S. strategy in Iraq. Lawmakers, including senior Republicans such as Senator Richard Lugar of Indiana, have warned the president that Congress must be consulted on the course ahead in the war.

Bush is pursuing a political strategy intended to try to maintain momentum for his initiatives. While pledging cooperation with Democrats, he warned against raising taxes as a path to balancing the budget.

For their part, Democrats led by incoming House Speaker Nancy Pelosi of California and Senate leader Harry Reid of Nevada plan a rush of 100 hours of legislative activity, some of which may collide with the White House.

Agendas

Their agenda includes raising the minimum wage, curbing some subsidies for oil and gas companies, ending the practice of slipping in pork barrel projects into legislation, and reducing student loan interest rates. Bush has signaled his agreement on the minimum wage and today reaffirmed that he supports efforts to cut special spending projects, known as earmarks, by at least half in the next year.

``It's definitely plausible to balance the budget by 2012 as long as the president is willing to take on the spending programs favored by special interests,'' said Brian Riedl, a budget analyst at the Washington-based Heritage Foundation, a policy research organization that generally has supported the president's agenda.

That may be a challenge. The Congressional Research Service estimates the number of special projects inserted into laws has grown from about 3,000 costing $20.2 billion in fiscal 1996 to 13,000 costing $67 billion in 2006.

Deficits

The budget has gone from a $127 billion surplus when Bush took office in 2001 to a deficit that reached a record $413 billion in 2004. Bush has cited the impact of the Sept. 11 attacks and a recession. Tax cuts he pushed through Congress at the start of his term also reduced government revenue at the same time federal spending kept rising.

The deficit currently is $248 billion, and the non-partisan Congressional Budget Office projects it will begin widening again in 2009.

One factor is the cost of the war in Iraq, which administration officials acknowledged has been higher than they estimated. The Defense Department is seeking $99 billion more for the war and operations in Afghanistan in the current fiscal year on top of the $70 billion already approved by Congress. Last year's emergency supplemental funding totaled about $120 billion.

Robert Portman, director of the White House Office of Management and Budget, said the president's projections for a balanced budget include estimates for war costs.

Bush today repeated previous calls for Congress to overhaul the Social Security, Medicare and Medicaid programs to improve solvency and grant him the power to delete provisions from legislative or spending bills, known as a line-item veto.

`Fiscal Train Wreck'

``Unless we begin to address these issues now,'' Portman said in an interview, ``we will have a fiscal train wreck in 20, 30, 40 years from now.''

Riedl said there was ``no way'' to balance the budget in five years without addressing those programs.

Tonight, on the eve of Congress opening its 110th session, Bush hosts a social reception for about a dozen members of the House and Senate from both parties, mixing in some legislative business.

Bush will submit his budget blueprint to Congress on Feb. 5. Last year's request was for a budget of $2.77 trillion, an increase of 2.3 percent from the previous year.

The budget `` will address the most urgent needs of our nation,'' Bush said. ``In particular, the need to protect ourselves from radicals and terrorists, the need to win the war on terror, the need to maintain a strong national defense, and the need to keep this economy growing by making tax relief permanent.''

To contact the reporter on this story: Roger Runningen in Washington at rrunningen@bloomberg.net

Last Updated: January 3, 2007 11:30 EST