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Obama faces an uphill battle on pledge to halve federal deficit

The president's reliance on methods that have previously fallen short and Congress' refusal to give up earmarks have many doubting his goal can be reached.

February 26, 2009|Janet Hook and Peter Nicholas

WASHINGTON — As President Obama presents his first budget today, the most daunting goal he has set may not be the ambitious proposals for economic recovery, healthcare reform or revamping the nation's energy policy. Big as those challenges are, they may be child's play compared with his promise to slash the federal budget deficit in half by the end of his first term.

Two problems already are apparent if Obama is to cut the $1.3-trillion deficit to $533 billion. First, many methods he says he will use have fallen short in the past -- cutting waste, imposing new budget rules, curbing defense outlays and raising taxes on the affluent.

Second and potentially harder to overcome is fresh evidence that, for all the talk of fiscal responsibility, Congress is not ready to mend its free-spending ways.

Exhibit A: The House on Wednesday passed a huge spending bill left over from last year that increased expenditures by 8%. And it's laden with thousands of pet projects inserted by individual lawmakers, both Democrats and Republicans.

Even before the details of Obama's budget were released, his deficit-reduction target has been viewed with skepticism in a variety of quarters. It has been criticized as relying on overly optimistic assumptions, as failing to be sufficiently ambitious, and as creating a marker that will be used against him in four years if he fails.

"It's going to be very tough," said Robert D. Reischauer, former director of the Congressional Budget Office. "It's going to require either some significant cutbacks in low-priority programs or a failure to enact some of his signature programs."

"I don't see how he can do it," said William G. Gale, a tax policy expert at the Brookings Institution whose analysis has found that even with the most optimistic assumptions, he would expect the deficit to be $850 billion in 2013. He believes that is almost surely an underestimate because his calculations assume that the economy will not worsen and another stimulus bill will not be needed.

And the experience of Obama's predecessor offers a cautionary tale: In 2004, President Bush vowed to halve the deficit by 2009 -- and failed spectacularly, owing in substantial part to the economic downturn and bipartisan spending on Capitol Hill.

One sign that Obama may be more serious is that administration officials said Wednesday that he would begin to pay for his vast healthcare initiative by raising taxes on the wealthy and cutting Medicare.

That won't reduce the deficit, but it will at least keep it from getting worse.

Obama has suggested that the biggest building blocks of his deficit reduction efforts will be ending Bush-era tax breaks for upper-income people, scaling back the Iraq war and making spending cuts that will presumably be specified when the budget comes out. He said in his speech to Congress on Tuesday night that his administration had identified $2 trillion in cuts.

The war in Iraq now costs $10 billion a month, but savings from pulling out U.S. forces -- which is expected to take longer than Obama's original 16-month time frame -- will be limited. Thousands of "residual" troops will remain behind, the process of withdrawing will carry costs of its own, and the president plans to increase troop levels in Afghanistan.

Taking those factors into account, the Center for American Progress has estimated that the government would save a net $240 billion over four years.

Obama's plan to end tax breaks for families earning more than $250,000 a year would not begin to increase revenue until they expire in 2011. At that point, revenue will rise by $136 billion in 2011-12, according to the nonpartisan Tax Policy Center.

A plan to raise taxes on private equity firms has great populist appeal but would raise only about $15 billion over the next four years.

Obama has also called for controlling spending by reinstating a form of fiscal discipline known as "pay-as-you-go" accounting. It requires that every spending increase or tax cut be offset with an equivalent spending cut or tax increase so as not to increase the bottom-line deficit.

The device has many critics, who say that in the past it has been riddled with loopholes and easily skirted.

" 'Paygo' would do virtually nothing to control spending growth," said Brian Riedl, a senior budget analyst for the Heritage Foundation.

Obama has acknowledged that his plan will call for spending cuts that will be difficult to swallow. He told Congress in his address that "everyone in this chamber -- Democrats and Republicans -- will have to sacrifice some worthy priorities for which there are no dollars. And that includes me."

Unfortunately for the president, there are signs that Democrats and Republicans in Congress will not have much appetite for such restraint, including his call to ban "earmarks" for things he considers pork.

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