Medicare, Social Security eyed

Obama names fiscal watchdog

WASHINGTON - Pointing with concern to "red ink as far as the eye can see," President-elect Barack Obama pledged yesterday to tackle Social Security and Medicare as a central part of his effort to control federal spending and named a special watchdog to eliminate government waste - even as he campaigned anew to spend the largest pile of taxpayer money in history to revive the sinking economy.

The steepness of the fiscal mountain he will face was underscored by stunning new figures: an estimate that the federal budget deficit will reach $1.2 trillion this year, by far the biggest ever, even without his stimulus package.

Still, Obama said, "an economic situation that is dire" requires immediate and bold action with unprecedented tax cuts and federal programs.

"We're going to have to jump-start this economy," Obama said. "That's going to cost some money."

He said that concerns about rising deficits prompted him to turn down advice from some economists who called for spending $1 trillion or more to jump-start the economy. Obama's proposal, which includes both spending and tax cuts, is expected to cost about $775 billion over two years.

The projected deficit, which does not account for a stimulus package, would dwarf last year's record of $455 billion deficit and, at more than 8 percent of the size of the economy, would be higher than the deficits of the 1980s.

The eye-popping estimates reflect plummeting tax revenues because of the recession and about $400 billion to bail out the financial industry and take over troubled mortgage lending giants Fannie Mae and Freddie Mac. The Congressional Budget Office estimate released yesterday also sees the economy shrinking by 2.2 percent this year and recovering only slightly in 2010, with the unemployment rate eclipsing 9 percent early next year unless the Obama administration steps in.

"The recession - which began about a year ago - will last well into 2009," the report says. The agency said "the ongoing turmoil in the housing and financial markets has taken a major toll on the federal budget."

As he named Nancy Killefer, a veteran of the Clinton administration, as the new chief performance officer, Obama promised to scour the federal budget to eliminate what doesn't work and improve what does to "put government on the side of taxpayers." But he offered few details.

Obama declined to comment on a report in The Wall Street Journal that he plans to keep Federal Deposit Insurance Corp. chairwoman Sheila Bair at her post. Still, he said, Bair and the FDIC "had the sense of urgency" that the crisis in the housing market needed.