- The Washington Times - Thursday, January 8, 2009

President-elect Barack Obama vowed Wednesday to tackle Social Security and Medicare spending as this year’s deficit was projected to reach $1.2 trillion and with Congress preparing to run that figure even higher with its economic recovery package.

Mr. Obama didn’t say how he would control the two major entitlement programs, instead promising details in February. But even raising the issue was a bold move, coming just four years after his own party helped block President Bush‘s Social Security reform efforts.

“We expect that discussion around entitlements will be a part, a central part, of those plans,” Mr. Obama told reporters at a brief press conference in Washington called to announce his pick for a chief accountability officer, a new position designed to scour the federal budget for failed programs and wasteful spending.

The Congressional Budget Office announced a projected fiscal 2009 deficit of $1.2 trillion even if Congress doesn’t enact any new programs. But Mr. Obama and congressional leaders already have called for a spending bill totaling nearly $1 trillion more and spread over two years, arguing that’s the best way to create jobs.

Republicans and Democrats on Capitol Hill were staggered by the deficit number, with some calling for renewed restraint and others placing blame.

About the only person who was silent on the deficit projection was Mr. Bush, who took office facing a surplus but who saw spending balloon and the country notch the highest deficits on record.

The White House referred calls about the deficit to its Office of Management and Budget, which did not issue a public comment on the new projection.

Democrats said the president should own up to what they said was his legacy.

“I’ll give President Bush the gold, the silver and the bronze for winning the three largest deficits in this nation’s history before this one,” said Sen. Kent Conrad, North Dakota Democrat. “But this goes in its own category — this is truly olympian.”

Mr. Obama and Congress are trapped between a desire to get spending under control and a need to boost the economy. They have concluded in the short term that stimulating growth will require more spending on job creation and national infrastructure such as bridges and school facilities.

Mr. Obama will make that case in a speech Thursday at George Mason University, where he will detail what has been dubbed the American Recovery and Reinvestment Plan. The details of his plan, which aims to save or create more than 3 million jobs, are still in the congressional negotiation phase.

Some Republicans are warning that the spending must be limited to one-time expenses that don’t add to deficits in the long term, while other Republicans are arguing for tax cuts rather than more spending to spur the economy.

Budget hawks and financial analysts warn that an $850 billion package could destabilize the financial markets if Mr. Obama and Congress don’t also prove they want to tackle the deficit.

Mr. Conrad, the chairman of the Senate Budget Committee, and Sen. Judd Gregg of New Hampshire, the committee’s top Republican, issued a joint statement this week saying long-term entitlement reform must be coupled with immediate spending in order to retain the confidence of world financial markets.

“As we address the economy, we need to simultaneously signal to the markets that we are serious about restoring fiscal discipline and putting our budget back on a sound long-term path. Linking these short-term and long-term plans is the best way to instill global confidence in the U.S. financial system,” they said.

At his press conference, Mr. Obama announced he was creating a position of chief performance office and would name management consultant and former Assistant Treasury Secretary Nancy Killefer for the role. He said she will be charged with making government more efficient and transparent.

“Change and reform can’t just be election-year slogans,” Mr. Obama said. “They must become fundamental principles of government.”

On entitlement spending, Mr. Obama has said he would boost payroll taxes on those with incomes higher than $250,000 a year to fund Social Security.

But the president-elect will find Medicare an even bigger challenge, with health care costs rising and himself already on record promising to boost what the government spends on prescription drugs by closing the gap in benefits that exist in the plan Mr. Bush signed into law.

Mr. Bush tried to tackle Social Security during his second term and spent several months in 2005 traveling the country arguing for personal accounts as part of the program. But he failed to sell his solution to most Democrats and many Republicans in Washington.

He told columnist Cal Thomas this week that he made a mistake and should have tackled immigration reform rather that Social Security in 2005.

“I probably, in retrospect, should have pushed immigration reform right after the ‘04 election and not Social Security reform,” he said.

While Mr. Obama plans a huge program of tax cuts and spending to revive the country’s economy, the CBO base-line report offers policymakers a snapshot of where the economy is heading if no federal action is taken.

The projections contain many grim numbers.

CBO predicted a “marked contraction” of 2.2 percent in the economy this year, the steepest loss since 1946, and said the federal government will collect $166 billion less in revenue than in 2008.

The nearly $1.2 trillion federal deficit is equal to 8.3 percent of U.S. gross domestic product, the highest ratio since World War II.

The CBO also projected that unemployment will peak at 9 percent in 2010 - a level reached only twice since the Great Depression.

Noting there are huge uncertainties hanging over the economy, Robert Sunshine, the CBO’s acting director, said the recession is forecast to end sometime in the second half of 2009.

• Kara Rowland and Patrice Hill contributed to this report.

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