WASHINGTON A U.S. commission looking for ways to balance the federal budget talked tough about fiscal discipline at its fifth meeting on Wednesday, but hard decisions were not expected until after the November 2 elections.
The commission met for less than three hours amid growing worry about government debt problems in Europe involving Ireland and Portugal, months after a crisis over Greek debt.
The U.S. deficit is a market concern, but it has not stopped investors from buying U.S. Treasuries -- considered the world's safest bet. Still, economists agree the deficit is on an unsustainable path and must be dealt with sooner or later.
The commission's work is "not going to be easy, it's not going to be fun, and in many cases it's not going to be popular," Co-Chairman Erskine Bowles said at the meeting, which was open to the media.
The bipartisan panel must look closely at changing the tax code and at spending for defense and agriculture programs, said one of its members, Democratic Representative Xavier Becerra.
Getting the U.S. government 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.
The highly charged election-year climate will make it difficult for the panel to recommend tough action on spending and taxes. But Becerra told reporters outside the Capitol Hill meeting that the commission's final report, due on December 1, will make a "compelling case" for improving the fiscal outlook.
Andy Stern, a former union leader who is on the commission, told reporters members will wait until after the elections, in which Democrats risk losing control of one or both houses of Congress, to make hard decisions. So far, he said, "There has been absolutely no formulation" of recommendations.
"I have minimum expectations from the commission," said Bill Cheney, chief economist with John Hancock Financial in Boston. "It would be wonderful if it does something. ... I think the market will give it a zero probability to come up with something useful, but anything is possible."
The U.S. budget deficit at the end of the federal fiscal year on Thursday is estimated to come in at $1.3 trillion to $1.5 trillion -- almost incomprehensibly huge figures that have voters scared headed into the elections.
The White House sees total U.S. public debt rising to 68.6 percent of gross domestic product in fiscal 2011. That level of total indebtedness, to which the budget deficit adds every year, would surpass Britain's projected debt-to-GDP ratio of 61.9 percent, but be well below France's 86.5 percent ratio.
Greece, hammered earlier this year by bond markets, is struggling to tame a debt load forecast at 139.4 percent of GDP next year, while Japan's debt is expected to top 235 percent of GDP for 2011, said International Monetary Fund forecasts.
The National Commission on Fiscal Responsibility and Reform was set up in February by President Barack Obama. It is co-chaired by Bowles, who was White House chief of staff under President Clinton, and former Republican Senator Alan Simpson.
Social Security is one of several areas being considered by the panel for changes. Picketers outside the meeting demanded the commission keep its hands off the public pension program.
Other commission targets include Medicare, defense spending and a range of tax policies, including popular tax deductions for mortgage interest and charitable giving, analysts said.
INVESTOR CONCERN LOW
Investors appear to be relatively unconcerned about the U.S. debt position, at least in comparison with Europe.
Not only is a U.S. default seen as extremely unlikely, demand was strong on Wednesday for $29 billion in seven-year Treasury debt, suggesting buyers see no reason for concern even as far out as 2017. The interest rate was a record low.
This contrasts with Europe, where borrowing costs for some weaker governments have soared on fears that shaky finances and huge deficits could lead to late or missed debt payments.
The deficit commission is far below the market's radar at the moment, said Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi UFJ in New York, adding that the final report in December "will not be a market-moving report."
China, the largest foreign buyer of U.S. government debt, increased its Treasury holdings to $846.7 billion in July. However, Beijing has repeatedly warned the United States to get its fiscal house in order.
Ireland promised on Wednesday to pin down the final cost of a crippling bank bailout as fears persist that the country is on the verge of a meltdown like Greece's earlier this year.
Portugal's president was in talks over a deal on the nation's 2011 budget amid reports of possible tax increases.
(Additional reporting by Kim Dixon, Caren Bohan, David Lawder and Emily Kaiser, with Richard Leong and Ellen Freilich in New York; Editing by Todd Eastham)