Formula for deficit cut won’t be easy to achieve

WASHINGTON (AP) — President Barack Obama’s ambitious goal of cutting the federal deficit in half relies on a perfect — some might say improbable — convergence of factors: a recovered economy, a tax boost for the rich and success in easing foreign entanglements.

In calling for a deficit of about $530 billion in four years, Obama has established a marker by which to measure his first-term performance as president. The dollar figure could be his albatross or his badge of success.

“This will not be easy,” Obama said Monday as he kicked off a fiscal summit at the White House. “It will require us to make difficult decisions and face challenges we’ve long neglected.”

For Obama, the challenge is clear: He will have to increase spending on health care and energy if he wants to accomplish the policy overhaul he promised during his campaign, yet he also needs to cut spending elsewhere and increase revenue to meet his deficit goal.

All this, even as he employs accounting practices he says will more honestly depict the size of the federal budget.

For him to succeed, the economy will have to meet current forecasts that it will begin to turn around gradually during the second half of the year. Even so, Obama might still have to seek billions more to help rescue the beleaguered financial sector.

Administration officials say Obama will also achieve budget reductions through lower spending on the war in Iraq. However, it is unclear how much of those savings he will then devote to Afghanistan, where he already has agreed to boost troop strength.

Further budget assistance would come from increases in taxes for wealthier Americans. Administration officials have said Obama will meet his campaign pledge to end President George W. Bush’s tax cuts for people who make more than $250,000. Those tax cuts are to expire at the end of 2010.

Obama plans other tax cuts for most Americans, but any tax hike is likely to meet stiff resistance from congressional Republicans. And if the economy has not improved, there will be pressure on him not to raise taxes on any segment of the population, no matter how rich.

Such a discussion about taxes would be especially charged in the middle of the 2010 midterm elections.

What’s more, banks are paying dividends on the assets that the government purchased in its rescue effort. The government could see a return on its investment in later years if banks can buy those assets back. The government experienced a similar increase in spending in the 1990s when the Resolution Trust Corp. bailed out the savings and loan industry. Eventually the government got its money back and more, contributing to the low deficits of the era.