* Social Security program, taxes said to be on its agenda
* Analysts question panel's ability to agree hard proposal
* Final report is due on Dec. 1, a month after elections
By Kevin Drawbaugh
WASHINGTON, Sept 28 A U.S. commission looking
at ways to cut the federal deficit is considering changes to
the Social Security retirement program and a variety of tax
increases, but doubts about its potential to come up with a
solid deficit-cutting plan are widespread.
Amid rising pre-election rhetoric over government red ink,
the commission set up in February by President Barack Obama
will hold another meeting on Wednesday. Its much-anticipated
final report is due to come out on Dec. 1.
Analysts are skeptical about the bipartisan group's ability
to agree on a formula in an election year that would tilt
Washington back into the black.
Under the order creating the panel, 14 of its 18 members
must vote to approve "a final report containing a set of
recommendations" to balance the budget, excluding interest
payments on the national debt, by 2015 and to "meaningfully
improve the long-run fiscal outlook."
Failure to meet this mandate could spook the bond markets,
although some analysts believe such a credit event is unlikely
as expectations for the panel have been low all along.
"They're looking at Social Security. Everyone has made that
very clear," said Dean Baker, co-director of the Center for
Economic and Policy Research, a think tank. "They have been
looking at the tax code ... at the system for tax expenditures
for healthcare, for the home mortgage interest deduction."
He added: "My guess is the final report is not going to be
a concrete proposal ... that Congress can literally vote on.
It's more likely to be recommendations that can be pursued."
That would be better than nothing, but nothing is also
possible in the divisive political climate, analysts said.
"The commission is not likely to be able to agree on very
much," said Brookings Institution fellow Isabel Sawhill.
"We need everything to be on the table and Republicans are
not likely to agree to any new revenues, leading to a stalemate
both on the commission and in Congress," Sawhill said.
Dozens of U.S. lawmakers signed a letter released on
Tuesday urging the panel not to tinker with Social Security.
The program "does not belong as part of" the panel's
recommendations, said the letter addressed to Obama, adding to
the challenges faced by the commission on Capitol Hill.
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 that have voters
scared as the economy struggles to recover from recession.
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.
Acknowledging the importance of the deficit situation,
Obama earlier this year appointed the National Commission on
Fiscal Responsibility and Reform, led by former White House
chief of staff Erskine Bowles and former Senator Alan Simpson.
At least two other panels of experts in Washington have
been working in recent months on the deficit-and-debt issue,
with members of these panels saying both spending cuts and tax
changes will be needed in any serious strategy.
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.
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.
U.S. budget hawks are demanding action, with some
Republicans in Congress urging a "hard cap" on spending.
Republican Representative Jeb Hensarling, a commission
member, last week called for canceling unspent stimulus funds,
capping discretionary spending, ending government control of
mortgage giants Fannie Mae FNMA.OB and Freddie Mac FMCC.OB,
and a net hiring freeze on non-security federal employees.
Republican Senator Bob Corker said on Thursday he is
working on legislation to cap spending.
"We need to change the conversation, and I think that means
focusing on the big picture first ... agreeing on the amount of
spending we can sustain," Corker said in a statement.
Such broad proposals may appeal politically, but they gloss
over the tough specifics, analysts said.
"A lot of the caps the Republicans have called for apply
only to non-defense, non-homeland, non-veterans discretionary
spending, which is one-seventh of the federal budget," said
Brian Riedl, a fellow at the Heritage Foundation.
"Capping one-seventh is better than nothing, but the more
spending that can be brought under a cap, the better."
Riedl speculated that changes to Social Security, Medicare
and Medicaid would be the focus of the commission. "I'm not
sure that significant tax changes would be able to get
agreement from 14 of the 18 commission members," he said.
Republican Senator Judd Gregg told Reuters last week that
the panel would emphasize spending cuts over tax increases and
that he was confident it would agree on an outline by Dec. 1.
He said a failure to reach consensus would "be a very bad
signal to the American people and the markets."
But a soft report from the panel was unlikely to cue
creditors to suddenly lose faith in U.S. debt instruments, said
American Enterprise Institute resident scholar Alan Viard.
That scenario "might be a bit of a stretch. The problem is
not imminent enough that you would be likely to see a mass
movement away from Treasuries," he said.
"The fact that it happened to Greece certainly doesn't mean
that it could happen here anytime soon."
(Additional reporting by David Lawder, Donna Smith and Andy
Sullivan, editing by Mohammad Zargham)