President Bush today proposed more than $700 billion in new spending for the US military in a budget that would curb domestic programmes from health to education.
George Bush
He also warned that even more spending for Iraq could be needed as he unveiled a $2.9 trillion budget for fiscal 2008 that is certain to anger Democrats.
The costs of the four-year-old war in Iraq are inching toward a staggering $1 trillion mark.
If Congress approves the war-funding request, the United States will have spent $661.9 billion on combat in Iraq, Afghanistan and related activities, the administration said.
On the domestic front, Mr Bush called for making his 2001 and 2003 tax cuts permanent and said it could be done while shifting the budget to surplus by 2012.
The spending plan envisages holding growth in domestic discretionary spending to 1 per cent. After accounting for inflation of 2.5 per cent, that rise would amount to a cut in programmes ranging from labour to education and cleaning up the environment.
"My formula for a balanced budget reflects the priorities of our country at this moment in its history, protecting the homeland and fighting terrorism, keeping the economy strong with low taxes and keeping spending under control," Mr Bush said in a statement.
But Democrats, now in control of the House of Representatives and the Senate, are sure to question Mr Bush's upbeat fiscal projections.
"The president's budget is filled with debt and deception, disconnected from reality, and continues to move America in the wrong direction," said Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat.
"This administration has the worst fiscal record in history and this budget does nothing to change that," he added.
Mr Bush's budget request will kick off weeks of hearings on Capitol Hill, where legislators will try to produce their own version of a budget blueprint by spring.
The bulk of Mr Bush's proposed savings would come in politically sensitive health programmes. Mr Bush would squeeze $66 billion over five years in savings from Medicare and $12 from the Medicaid health programme for the poor.