RPT-U.S. deficit-cut panel convenes amid skepticism

Wed Sep 29, 2010 7:01am EDT

* Final report due on Dec. 1, a month after elections

* Social Security program, taxes said to be on agenda

* Analysts question panel's ability to hammer out proposal (Repeats with no change in content)

By Kevin Drawbaugh and Donna Smith

WASHINGTON, Sept 29 (Reuters) - With just two months left before it has to issue a final report, a U.S. commission looking at ways to cut the federal deficit was to meet again on Wednesday amid questions about its hard-headedness.

Getting the government's budget out of the red and back into the black -- after years of costly wars, tax cuts and recession -- will require spending reductions and tax increases, according to most analysts looking at the issue.

But in a highly charged pre-election political climate, making hard judgments on these fronts may be too much to ask of the panel set up in February by President Barack Obama, said the same analysts, who have watched the commission closely.

Politicians from both parties and a handful of business community figures are led by former White House chief of staff Erskine Bowles and former Senator Alan Simpson on the 18-member National Commission on Fiscal Responsibility and Reform.

Bowles is a Democrat who worked for President Clinton, while Simpson was a top Senate Republican for many years.

As if the panel's job weren't tough enough, the National Organization for Women and other activists plan to picket outside Wednesday's meeting to demand Simpson's ouster.

He angered women's groups last month when, in an email to a critic, he likened the national Social Security retirement pension program to "a milk cow with 310 million tits."

Social Security is one of several areas being eyed by the panel for changes. Others include Medicare, the defense budget and a range of tax policies, including popular tax deductions for mortgage interest and charitable giving, analysts said.

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Virtually every item on the commission's hit-list has a political constituency that is bound to be angered by any attempts at reform, said Maya MacGuineas, director of fiscal policy at the New America Foundation, a think tank.

That's what happens when a problem like the budget deficit is left to fester for so long. Easy solutions fade away until only the tough choices remain. "There's no fix now that doesn't include political third rails," MacGuineas said.

The budget deficit as of the end of the federal fiscal year on Thursday is estimated to be $1.3 trillion to $1.5 trillion -- figures that are hard to comprehend and scare voters.

A Reuters/Ipsos poll last week showed that 57 percent of Americans see cutting the deficit as a better way to help recovery than raising government spending, although many economists warn spending cuts now could hurt the economy.

A group of 300 economists, including former Secretary of Labor Robert Reich, earlier this month signed a statement warning of "a grave danger that the still-fragile economic recovery will be undercut by austerity economics."

Although Republicans are dug in to resist tax hikes and Democrats are rushing to defend cherished programs, the stark reality is that the deficit must be dealt with sooner or later, said Brookings Institution fellow Isabel Sawhill.

"The long-term fiscal picture is just horrific ... It may take a crisis before we can break the political stalemate. I have been traveling as part of a 'fiscal solutions' tour and the public is very frustrated about the lack of action," she said. (Additional reporting by David Lawder and Andy Sullivan. Editing by Eric Walsh)