A warning for Obama on deficits
Summit today will consider call for action
WASHINGTON - Just one week after President Obama signed a stimulus package designed to give a short-term boost to the economy, some of the nation's top budget analysts plan to deliver a stark warning today at a White House summit that an even more foreboding long-term crisis will unfold unless Obama quickly fixes Social Security, healthcare, the tax code, and more.
While the $787 billion stimulus plan relies on tax cuts and increased spending, the list of problems to be addressed at the "Fiscal Responsibility Summit" could result in a series of painful political decisions that might eventually include tax increases and cuts in government benefits.
And although the stimulus package was passed almost entirely by Democrats, any significant changes on taxes and entitlements are considered unlikely without bipartisan support.
The measures to control the federal deficit are considered so controversial that some members of Congress are urging that Obama create a powerful commission, composed of leaders of both parties, to reach a "grand bargain" that would be subject to an up-or-down vote in Congress, possibly with no amendments allowed.
"The stimulus was political nirvana: cut taxes and raise spending," said Robert Bixby, executive director of the fiscal watchdog group Concord Coalition, who is among those invited to the summit. "This is the opposite; it is the political agenda from hell."
But the agenda must be addressed, analysts said. In a recent memo to Obama, 12 top budget specialists including Bixby warned that "although we are rightly absorbed by our short-term problems, the long-term budget situation ultimately poses graver challenges to the success of your presidency."
The White House has invited a number of those who signed the memo, as well as members of Congress and representatives of business and labor, to join the summit. The 130 guests will meet with Obama and administration officials to discuss "how we can bring down the deficit and put our economy on sound financial footing," the White House said.
Obama will then outline the problem tomorrow night, in his first address to a joint session of Congress, and provide more detail when he presents his first budget Thursday.
Obama faces a record $1.2 trillion deficit in the current fiscal year, which has exploded partly because of the fall in tax revenues during the 14-month-old recession - and that does not include the cost of the stimulus package. Obama is hoping that the stimulus, along with banking and housing rescue plans, will revive the economy and eventually increase revenues to the Treasury.
Over the weekend, administration officials said that Obama's budget outline aims to cut the annual deficit by at least half by the end of his term, mainly through Iraq troop reductions and higher taxes on the wealthy.
Budget analysts are worried that a continuing economic crisis will make it impossible to raise sufficient funds from foreign markets to finance the nation's debt. In the last four years, about three-quarters of US debt was purchased by foreign interests, most prominently by China.
If other nations lose confidence that the United States will pay its debts, however, some economists fear an international financial crisis could escalate and turn into a worldwide depression. In any case, it is widely expected that debt purchasers will soon demand higher interest rates, which would translate into higher costs for US taxpayers.
Obama is being urged by some analysts to start moving toward a balanced budget as soon as possible to send a signal to the world that deficit spending will abate. Yet some analysts are offering Obama conflicting advice, warning him not to repeat what they regard as the mistake of President Franklin Roosevelt, who launched the New Deal but eventually heeded calls to curtail deficit spending, only to see a new recession batter his presidency.
A key player in the summit will be Senator Judd Gregg, the New Hampshire Republican who backed out of his commitment to be Obama's commerce secretary and then voted against the stimulus bill.
Despite the embarrassment caused by Gregg's about-face, the White House believes that he could be one of its most important allies in the overhaul of Social Security, Medicare, and tax policy. That is because Gregg is the co-sponsor of the measure that would create a bipartisan commission to put together far-reaching recommendations for an up-or-down vote by Congress.
In an interview, Gregg said that under such a procedure, the measures could be passed within a year, as long as most of the benefit cuts and tax increases were not slated to take effect until well after the recession is over. "We need an up-or-down vote on a package that will be unquestionably bipartisan and fair," Gregg said, a reference to criticism that Obama's stimulus bill was too partisan.
Asked about his hopes for the summit, he said, "It can either be very nice public relations or move the ball down the road on what is an impending fiscal tsunami."
Some budget specialists are skeptical. Robert Reischauer, former head of the Congressional Budget Office, said Obama should have seized the opportunity to pair the stimulus bill with the overhaul of Social Security, Medicare, and the tax code.
"When you are shoveling out the goodies, you have a greater probability of getting people to sign on to some fiscal diet," said Reischauer, who has been invited to the summit. He said he is worried that nothing will happen on the most difficult issues until political leaders "have a gun at our heads. The system tends to respond only in the face of unavoidable crisis."
Analysts across the political spectrum agree that the current path is unsustainable. Unless there is a major budgetary change, federal spending will go from being about 20 percent of the nation's economy to 42 percent in 2050, according to the Concord Coalition. The major reason is that entitlement programs for older Americans are running short of funds.
Social Security is slated to pay out more money than it receives by 2017. Obama suggested during his campaign that he might support changing the level of income at which Social Security taxes are calculated. Another frequently mentioned option is raising the retirement age.
But any measure will be even more controversial than usual because so many Americans have seen their private retirement plans pummeled by the stock market collapse.
Medicare, the government-run healthcare program for older Americans, is already running a deficit, which is expected to increase quickly as baby boomers retire. That is why many analysts are urging Obama to link changes in Medicare with an overhaul of the health system.
At the same time, an estimated 47 million Americans have no health insurance, according to the Census Bureau.
Obama must also consider the election calendar. He may want to deal with some of the most difficult decisions before the 2010 midterm elections.
While economists have been warning about the long-term problems for years - with little effect - the current crisis has made matters far worse. Reischauer told a congressional committee last month that paying for the stimulus and bailouts has cost the equivalent of doing nothing about the long-term problems for another five to 10 years.
The president has acknowledged the costly trade-off he has been forced to make. Signing the stimulus bill last week, Obama said, "We will need to do everything in the short term to get our economy moving again, while at the same time recognizing that we have inherited a trillion-dollar deficit, and we need to begin restoring fiscal discipline and taming our exploding deficits over the long term."
Michael Kranish can be reached at kranish@globe.com. 
