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WASHINGTON — The White House announced Friday that President Bush will veto the 2008 Defense authorization bill over a little-known clause regarding legal claims against the Iraqi government.

The move will delay part of the 3.5 percent pay raise for all military personnel scheduled to begin Jan. 1, but defense officials said it should not affect servicemembers’ re-enlistment bonuses and other specialty pays.

Servicemembers will still see a 3 percent raise authorized by the White House earlier this month. The remaining 0.5 percent raise, outlined by Congress in the bill, won’t go into effect until the authorization bill or some amended version of it is signed into law.

The legislation, which authorizes $507 billion in defense spending this fiscal year, does not include any new money for missions in Iraq or Afghanistan but would allow Congress to later provide up to $189 billion for those operations.

But it does set spending and policy priorities for the fiscal year, such as an overhaul of the Defense health system, more generous rules regarding active-duty leave time, and language reauthorizing 85 re-enlistment bonuses and specialty pays.

In a Friday statement by White House Deputy Press Secretary Scott Stanzel, Bush said the veto was necessary after lawyers determined one section could freeze Iraqi funds held in U.S. banks — including reconstruction money — until lawsuits pending against Saddam Hussein’s government are settled.

“Once in place, the restrictions on Iraq’s funds that could result from the bill could take months to lift, and thus (it) cannot become law even for a short period of time,” he said.

But Democrats blasted the move. House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nevada, in a joint statement said the needs of U.S. troops outweighed the concerns of Iraqi lawmakers.

“The Defense bill passed both houses of Congress by overwhelming bipartisan margins and addresses urgent national security priorities …” the statement said.

“Instead, we understand that the President is bowing to the demands of the Iraqi government, which is threatening to withdraw billions of dollars invested in U.S. banks if this bill is signed.”

Last year, legislation governing dozens of enlistment bonuses and specialty pays expired almost a week before the president signed the 2007 authorization bill into law.

Defense spokesman Lt. Col. Jonathan Withington said under existing guidance from Congress military officials were permitted to keep those incentives active during the gap, and expect to do the same this year.

But sorting out the 0.5 percent difference could be delayed weeks — the House is not scheduled to return to full session until Jan. 15, and the Senate not until Jan. 22. A house Democratic aide said leadership had no plans to return early to deal with the authorization bill.

White House officials said they will work with congressional leaders on amending the problematic portions of the legislation when they return, and would ask that all pay raises be made retroactive to Jan. 1.

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