Few of us would refuse free money. But when it comes to federal education funds, states are doing just that--and, in the process, providing an interesting context for President Bush's latest budget.

His budget would cut more than $4 billion from 48 ineffective federal education programs and reallocate most of it to several new Bush initiatives focused on high school and college students. Overall, the president is recommending a $530-million cut in the Department of Education's $56-billion annual budget.

Bush's budget request coincides with the release of an explosive new study by the House Education and Workforce Committee that shows states are incapable of spending all the federal education dollars sent their way. The committee found that the states "returned more than $66 million in unused federal education funds to the U.S. Treasury in 2004."

Democrats, inexplicably, ignored these findings and lambasted Bush. Massachusetts Sen. Edward Kennedy characterized the President's budget as "the most anti-student education budget since [President Reagan] tried to eliminate the Department of Education." Where is the Democratic line in the sand?

Reconciliation Important

"A word that people are going to have to become familiar with," House Budget Chairman Jim Nussle announced at his committee's first hearing on President Bush's fiscal 2006 budget, "is reconciliation." "Reconciliation" is Washington-ese for the hodgepodge of legislative proposals required to squeeze savings (in amounts set forth by the House and Senate in the annual budget resolution) from exploding entitlement programs such as Medicare, Medicaid and farm subsidies.

The new chairman of the Senate Budget Committee, New Hampshire's Judd Gregg, echoed Nussle's blunt assessment. Gregg fingered Medicaid and Medicare as the programs most in need of Congress's attention.

In his budget, the President proposed several tweaks to Medicaid that would yield a 10-year savings of $60 billion and recommended about $6 billion in reforms to corral runaway farm subsidies.

The willingness of lawmakers to acknowledge the inevitability of the first budget reconciliation process that would force Congress to look at mandatory-spending reductions since 1997, combined with Bush's willingness to confront controversial areas of federal largesse, suggests that the political battle lines in 2005 will resemble those that prevailed during the days of the Republican-controlled Congresses of the mid-1990s.

Expect congressional Democrats to wage relentless battles against every Republican proposal to reduce spending, even as they decry Republican deficits and profligacy. But congressional Republicans should welcome the return of this brand of warfare, which will help them re-establish a reputation for spending restraint with their frustrated conservative base. This would be no small political feat, given that the 2006 mid term election qualifies as a "six-year itch" election (where voters historically turn out members of the president's party during his sixth year in office). Enthusiasm among core Republican supporters will be crucial for Republicans to retain control of Congress.

To earn this enthusiasm, Republican leaders will have to deliver on the high expectations established in the President's budget--a 1% reduction in non-security spending, some restraint in federal entitlement programs, and the enactment of promising budgetary reforms, such as the President's proposal to require Congress to vote in an expedited manner on the elimination and consolidation of wasteful federal programs.

A Taxing Debate

Every legislative debate requires a right and left wall--parameters within which the real debate takes place. Liberals and conservatives define their dream scenarios, and the outcome winds up somewhere in the middle.

During the struggle to enact President Bush's $1.6-trillion tax cut in 2001, for example, House conservatives rallied around an even larger $2.3-trillion tax reduction plan designed by former Rep. Pat Toomey of Pennsylvania. Their insistence on the largest possible tax cut created a necessary context for the President's plan, as did liberal proposals to move the other way and increase taxes on the "rich."

The current confrontation over Social Security is no exception. At a recent gathering, more than 50 House conservatives agreed to several debate-defining markers. Among them:

• Workers should be able to deposit all of the employee's share of the payroll tax, about 6% percent of every dollar earned up to $90,000, into a personal account, not the President's recommended level of 4% (with an initial cap of $1,000).
  
• The accounts should not be delayed until 2009, as the President proposes.
  
• No tax increase can be part of the final deal, whether that hike comes in the form of an increase in the amount of wages subject to the payroll tax, an increase in the payroll tax itself, or the introduction of a new tax to offset the costs. Indiana Rep. Mike Pence, chairman of the Republican Study Committee, described the opposition to new or increased taxes as "deafening."
  
• The transition financing required to fund the personal accounts should come first and foremost from cuts in government spending.

Congressional leaders should keep these concerns in mind as they craft a Social Security reform plan.
 
Mr. Franc, who has held a number of positions on Capitol Hill, is vice president of Government Relations at The Heritage Foundation.