McCain, Obama advisers clash on balancing the budget

By Claudia Parsons

NEW YORK (Reuters) - The financial crisis has "thrown a wrench" in the plan of U.S. Republican presidential candidate John McCain to balance the budget in his first term, his economic adviser Doug Holtz-Eakin said on Monday.

McCain has pledged to reduce government spending and balance the federal budget by 2013 and has insisted that the current financial crisis will not alter his campaign promises.

"The events of the past few months have completely thrown a wrench into that, there's no way round it. He would still like to balance it. It's going to be harder, take longer," said Holtz-Eakin at a debate with his Democratic counterpart at Columbia University in New York.

Austan Goolsbee, who advises Democratic candidate Barack Obama, said McCain had consistently called for balancing the budget without explaining how he would do so.

"We have a $500 billion deficit and John McCain's tax plan alone would almost double the deficit," Goolsbee said.

"So even before the financial crisis you had John McCain creating steady state deficits of pushing on $1 trillion. So I keep asking: 'Which $1 trillion of the budget would you cut to balance the budget?'" he said.

Goolsbee said McCain's pledge to eliminate earmark spending would cut at most $18 billion while a proposed McCain spending freeze would save another $12 billion, leaving $970 billion.

Holtz-Eakin said that while cutting earmarks would only save $18 billion, it was vital to do so because "earmarks corrupt the process" and hampered the ability of Congress to deal with larger issues such as Medicare and Social Security.

He also said the best way to balance the budget was to promote economic growth -- an aim he said was not furthered by Obama's policies on taxes, health insurance and jobs.

Goolsbee said Obama's more modest promise to reduce the deficit would also be complicated by the financial crisis.

"Senator Obama has outlined a plan that says given the hole we've dug, it's not realistic to balance the budget in the next four years. But we can reduce the deficit that he inherits," Goolsbee said. "The financial crisis complicates that in the first two years."

The credit crisis and fears of a looming recession have raised questions about which promises each candidates will be able to keep if elected. Economists point to McCain's tax cuts and Obama's health care reforms as the most expensive pledges, and therefore the most vulnerable.

The Republican senator from Arizona has promised to keep the tax cuts put in place by President George W. Bush and reduce corporate income tax rates to 25 percent from 35 percent. His tax plans have been estimated to cost some $400 billion a year, according to the Wall Street Journal.

The Democratic senator from Illinois has promised a major overhaul of the U.S. health insurance system that his campaign estimates will cost $50 billion to $65 billion. He promises to pay for that by rolling back tax cuts on Americans making more than $250,000 a year.

(Editing by Anthony Boadle)