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* Gonzales testifies for seven hours about warrentless eavesdropping; defends legality of program but largely avoids providing specifics. Gonzales: "Think about the reaction, the public reaction that has arisen in some quarters about this program. If the president had authorized domestic surveillance as well, even though we're talking about al Qaeda-to-al Qaeda, I think the reaction would have been twice as great. And so there was a judgment made that this was the appropriate line to draw in ensuring the security of our country and the protection of the privacy interests of Americans." [WP, NYT, USAT, WT]


* Bush proposes $2.77t budget that would cut funds from most federal agencies while increasing military funding by 7%; deficit would be record $423b. The "patchwork of generosity and austerity reflects the priorities of Bush, who has defined his administration's central goal as combating terrorist threats." [WP, NYT, NYT, USAT, WT]

* Budget could be "risky election-year strategy" for Republican lawmakers. Rep. Paul Ryan (R-Wis.): "Politically, the right thing to do this year is also the popular thing to do, and that is to cut spending." [LAT, NYT, USAT]

* Budget predictions depend on tax overhaul, an end to the war in Iraq, and no new funds for the Gulf Coast. [WP, NYT, USAT, USAT]

* Republicans lack unity over eavesdropping issue. Sen. Specter (R-Pa.): "I think they are seeing concerns in a lot of directions from all segments: Democrats and Republicans in all shades of the political spectrum." [WP]

* Democrats seem "coordinated" in questioning of Gonzales but political risks remain. Sen. Schumer (D-N.Y.): "Like everyone else in this room, I want the president to have all the legal tools he needs as we work together to keep our nation safe and free, including wiretapping." [NYT]

* Eavesdropping debate hinges on interpretations of 1978 law and 2001 resolution. [NYT]

* Bush proposes equal pay raise for civilians and the military. [WP]

* Gonzales showed "little deference" to Senate panel. [WP]

* Sen. Clinton responds to criticism from Ken Mehlman by accusing GOP of "trying to divert attention away from their many failures and shortcomings." [NYT]

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