Feb. 4 (Bloomberg) -- President George W. Bush sent Congress a $3.1 trillion federal budget that trims Medicare and health care programs, boosts military spending and projects the deficit this year and next will hit near-record levels.

The budget blueprint for fiscal 2009 slows the rate of growth in spending for entitlement programs such as Medicare for savings of $208 billion over five years. Pentagon spending would rise 7.5 percent to $515 billion, the 11th consecutive year of increases. Programs in the departments of education, interior, transportation, justice and agriculture would be reduced.

The election-year budget, the first in U.S. history to surpass $3 trillion, is certain to touch off a clash with Congress over priorities, spending levels, tax cuts and the deficit. With Democrats controlling both the House and Senate and the political campaign to succeed him fully engaged, Bush's spending plan stands little chance of being adopted. Criticism came today from Republicans as well as Democrats.

``There's a lot of games, smoke, mirrors, incomplete numbers, basically there's not much realism'' in the budget, Senator Judd Gregg, the top Republican on the Budget Committee, said in an interview. ``They're playing the usual games.''

Deficit

Even with the savings Bush proposes, the budget deficit is projected to reach $410 billion this year. That is up from $162 billion in 2007, reflecting a slower economy generating fewer corporate tax receipts, the cost of a $146 billion economic stimulus measure and spending on the wars in Iraq and Afghanistan. The deficit is forecast at $407 billion in 2009. The record deficit in dollar terms was $413 billion in 2004.

The shortfall this year would amount to 2.9 percent of the $13.2 trillion U.S. economy, up from 1.2 percent last year.

The deficit ``can be temporary, and we believe this is manageable,'' Office of Management and Budget Director Jim Nussle said. ``We need to do more to keep spending in check.''

Attempts to reach a budget deal with congressional Democrats in an election year will be ``challenging,'' he said.

House Budget Committee Chairman John Spratt, a South Carolina Democrat, was critical of Bush's budget plan and said it's not likely to make into law before the start of the fiscal year on Oct. 1.

Congress may pass a bill holding spending at current levels ``to get us past the November elections, and then wait and see if there's another president with whom we could deal,'' Spratt said in an interview with Bloomberg Television.

Warning on Deficit

Separately, he warned that the administration was underestimating the costs of the Iraq war and legislation to prevent the alternative minimum tax from hitting more tax payers. With those costs, he said, the deficit may total more than $440 billion next year.

The budget largely maintains Bush's priorities: a strong defense, more money for homeland security and making permanent the tax cuts passed in his first term.

Domestic programs outside defense and homeland security would be held to an average increase of less than 1 percent. That's effectively a cut in agency budgets because it is less than the rate of inflation, which last year was 4.1 percent.

The budget represents a 6 percent increase from estimated spending of $2.93 trillion for the year that ends Sept. 30. The administration says the budget would have a surplus of $48 billion in 2012 if the president's blueprint is adopted.

Economic Forecast

White House budget documents forecast an economy that will grow 2.7 percent this year, unchanged from the estimate issued on Nov. 29. The projection is more optimistic than the 2.1 percent growth increase expected by 66 private economists in a Bloomberg survey released Jan. 9, the latest available.

Senator Kent Conrad, chairman of the Budget Committee, said the stimulus package may add as much as 1.25 percent to the GDP, which means the White House forecast for 2.7 percent growth this year may ``come in about right.''

``They may be saved by the stimulus package,'' the North Dakota Democrat said at the Capitol.

For the Defense Department, which accounts for about a fifth of the budget, the administration is asking for $70 billion to carry out military operations in Iraq and Afghanistan until the new president takes office on Jan. 20, 2009.

Gregg said defense costs ``are totally understated.''

Program Cuts

The proposal includes freezes or cuts to popular domestic programs that are likely to rile congressional Democrats. It would cut discretionary spending by the Department of Health and Human Services by more than 2 percent in part by freezing the budget of the National Institutes of Health, which heads the government's medical research efforts.

The Centers for Disease Control and Prevention, meanwhile, would take a 6.2 percent reduction. The Health Resources and Services Administration, which helps the poor receive medical care, would be cut by 15.8 percent.

While some education programs face cuts, the Education Department's overall budget would rise 3.5 percent as the president pushes for more spending for his No Child Left Behind initiative and increases in Pell grants for college students.

Bush also called for reducing or eliminating 151 programs for a savings of $18 billion in 2009, including $1.1 billion in grants to states to subsidize technical education, a $32 million program for counseling on alcohol abuse, and a scholarship program honoring Senator Robert Byrd, a West Virginia Democrat and Bush critic.

User Fees

The budget proposes $4.5 billion in new or expanded user fees, many of which have been rejected by lawmakers in previous years. Among them: a new generic-drug review fee at the Food and Drug Administration; higher premium charges for the Pension Benefit Guaranty Corporation, which insures private pensions; higher airline-passenger security fees; and new transaction fees on commodity futures contracts to fund the industry's regulatory agency, the Commodity Futures Trading Commission.

There won't be much time to focus on the budget before the elections. The House is scheduled to be in session 104 days through November, down from 164 days last year, according to the schedule set by House Speaker Nancy Pelosi, a California Democrat.

To contact the reporters on this story: Roger Runningen in Washington at rrunningen@bloomberg.net; Brian Faler in Washington at bfaler@bloomberg.net

Last Updated: February 4, 2008 16:07 EST