(Updates with more budget numbers) By Caren Bohan WASHINGTON, Feb 3 (Reuters) - President George W. Bush said on Saturday his upcoming budget proposal would emphasize restraint on domestic spending while making defense and war costs for Iraq and Afghanistan the top priority. "Cutting the deficit during a time of war requires us to restrain spending in other areas," Bush said in his weekly radio address. Previewing the fiscal year 2008 budget he will unveil on Monday, Bush also said it would show his goal of erasing the deficit by 2012 could be accomplished while making his tax cuts permanent. "Congress needs to make this tax relief permanent, so we can keep America's economy growing. Pro-growth economic policies also play a vital role in our plan to balance the federal budget," he said. "Our growing economy has produced record levels of tax revenue. This increase in tax revenue has helped us cut the deficit in half three years ahead of schedule," he added. "On Monday, we will take the next step when I submit to Congress a budget that will eliminate the deficit by 2012." Bush will propose a 1 percent increase in spending outside defense for fiscal 2008, according to an administration official who spoke on condition of anonymity. That would amount to a decrease in many programs after accounting for inflation, which is running at about 2.5 percent. The president would boost the regular Pentagon budget by 10.5 percent to $481 billion, the official said. FINANCING IRAQ, AFGHANISTAN WARS An additional $245 billion will be sought to finance the wars in Iraq and Afghanistan through late 2008. That involves a $100 billion request for the wars for the rest of the current fiscal year that ends on Sept. 30 and $145 billion for next year. "Our troops deserve our full support, and this budget gives them the resources they need," Bush said, adding he would set as his top priority "keeping America safe and winning the war against extremists." He did not discuss any of the numbers in the budget. This is the first year Bush will submit his budget to a Democratic-controlled Congress. Many Democrats have called Bush fiscally reckless and contend his huge tax cuts were heavily skewed toward the wealthy and were unaffordable. The nonpartisan Congressional Budget Office said in a report last month that balancing the budget was possible by 2012. Its assumptions did not factor in an extension of the Bush tax cuts or changes Congress is likely to make to shield middle-class Americans from the alternative minimum tax that was originally aimed at wealthy Americans. The president's budget includes money to address the alternative minimum tax for one year. Bush, who addressed House of Representatives Democrats at their retreat in Williamsburg, Virginia, on Saturday, also called for a bipartisan effort to rein in entitlement programs, such as the Medicare health program for older Americans. "Controlling spending also requires us to address the unsustainable growth of entitlement programs such as Social Security, Medicare, and Medicaid," Bush said. "Spending for these programs is growing faster than inflation, faster than our economy, and faster than our ability to pay for it. Bush's budget will propose squeezing about $70 billion in savings from the Medicare and Medicaid health programs over the next five years, an administration official said. Under the budget proposal, wealthier seniors would have to pay higher premiums under Medicare for prescription drugs, The Washington Post and New York Times reported, citing a senior administration official and budget documents, respectively.
