Key advisor turns attention to grappling with growing concerns over deficit

The White House vowed Tuesday to tackle the nation’s record deficit next year amid new polling that suggests more Americans think President Barack Obama has handled the economy poorly.

White House Budget Director Peter Orszag said Obama and the administration’s economic team are looking at “a range of options” to be included in the fiscal 2011 budget proposal that would address the record $1.4 billion deficit.

Orszag talked broadly about the need to reduce the deficit during a speech in New York, offering reassuring words on the topic without concrete proposals.

The speech was made exactly one year before the midterm elections and as many vulnerable centrist Democrats fear voters will respond to the poor economy on Election Day 2010.

It also comes after a year of deficit spending, most notably a $787 billion stimulus package that attracted the support of only three Republicans in Congress, and as Democrats are looking to pass a nearly $1 trillion healthcare reform package that they say will be paid for.

More than half of Americans now say they disapprove of the way Obama has handled the federal deficit, and 48 percent disapprove of the way he has handled the economy, according to a Washington Post/ABC News poll taken last month.

Orszag didn’t describe deficit-reducing options under consideration, such as tax increases or spending cuts. Instead, he warned that the projected deficits are “serious and ultimately unsustainable.” The debt, currently at $12 trillion, is expected to grow by $9 trillion over the next decade.

Though Orszag said that deficit spending is necessary to stimulate the economy when unemployment is hovering around 10 percent, he said red ink must be stopped as the economy recovers and private investment increases.

“It is at this point that we are likely to observe a rise in interest rates, an increase in borrowing from abroad, or some combination thereof due to the deficits,” Orszag said. “And it is at that point that deficits will be putting the health of our economy in jeopardy rather than helping to mitigate the most severe economic downturn in more than 50 years, as they are now.”

Orszag’s remarks were just the latest this week from an administration aiming to show that it, too, is concerned about the country’s fiscal situation.

Treasury Secretary Timothy Geithner said last Sunday on NBC’s “Meet the Press” that the president was committed to reducing the deficit while also upholding his pledge not to increase taxes on those making less than $250,000.

Republicans have pointed to this year’s record deficit and projections of near-trillion-dollar deficits for years to come as evidence of the White House’s fiscal irresponsibility. When asked why the administration is publicly voicing worry about the debt, Sen. Judd Gregg (R-N.H.) said Democrats are concerned about polls.

Gregg, the top Republican on the Senate Budget Committee, said the Obama administration is saying the right things but the president and Democrats in Congress have yet to act on those words.

“I think it’s been poll-tested and focused and developed, but the substance of their actions is just the opposite,” he said.

Gregg said the Democratic healthcare proposals for increased coverage and a public insurance plan were more evidence that Democrats have yet to get serious about fiscal reform. Gregg said the Democratic plans, which include a government-run health insurance option, would only lead to another expensive entitlement program.

Centrist Democrats are also expressing worry over the nation’s fiscal health.

Sen. Evan Bayh (D-Ind.), eight other Senate Democrats and an Independent called on Senate leadership last month to consider a special legislative process to produce a package of fiscal recovery reforms. Bayh said the special process should be considered during debate over an increase in the $12.1 trillion debt limit, which must be approved by the upper chamber within weeks.

Sen. Kent Conrad (D-N.D.), the Senate Budget Committee chairman, and Gregg plan to hold a hearing Tuesday on their proposal for a bipartisan fiscal task force.

But all the attention being paid to the deficit isn’t likely to result in sustainable deficits for years, at least not while the high jobless rate persists, budget experts said.

“Orszag knows that the economy will still be in bad shape [in 2010], so he can’t be pushing any big-time budget cuts or tax increases,” said Dean Baker, co-director of the Center for Economic and Policy Research, a left-leaning economic think tank. The White House has projected that the unemployment rate will average 9.1 percent next year.

Orszag himself acknowledged that unemployment will be a problem for months.

“The typical progression in a recovery is first an increase in productivity, then an increase in hours worked, and finally, the hiring of additional workers by firms,” he said. “We are somewhere between the first and second stages of this process.”

Baker suggested the White House’s recent remarks about the dire fiscal situation are an attempt to “dress up” deficit reductions in 2011 as “serious deficit-cutting moves.” The deficit should shrink over the next two years as stimulus spending slows down, Baker said. The White House projects deficits of $1.5 trillion in 2010 and $1.1 trillion the year after.

The enactment of a bipartisan process to reduce the deficit isn’t likely to come soon, either, said Jim Horney, federal fiscal policy director at the Center on Budget and Policy Priorities. Speaker Nancy Pelosi (D-Calif.) has opposed giving a special panel the power to craft fiscal reform legislation, arguing instead that the regular committees should handle it.

“Politically, I don’t think we’re at the place yet where you’ll get the kind of bipartisanship you need to do it,” Horney said.

The Obama administration has blamed its predecessor for creating huge deficits.

Orszag said Tuesday that $5 trillion of the increased red ink over the next 10 years is the result of tax cuts and the Medicare Part D prescription drug benefit, both of which were enacted under former President George W. Bush. Obama has proposed extending the tax cuts for Americans making less than $200,000 but allowing the cuts for wealthier Americans to expire.

The rest of the deficit spending stems from about $3.5 billion in increased spending on programs aimed at providing recession relief, including unemployment insurance and food stamps, and because of the stimulus.