'A lot of things have to go right'

WASHINGTON - President 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 reducing the deficit to $530 billion in four years, Obama has established a marker by which to measure his first-term performance as president. It could be his albatross or his badge of success.

"This will not be easy," Obama said yesterday as he opened a fiscal summit at the White House.

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 forecasts that it will begin to turn around gradually in 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, he is boosting troop strength in Afghanistan.

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 increase is likely to meet stiff resistance from congressional Republicans. 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 wealthy.

A discussion about taxes would be especially charged in the middle of the 2010 midterm election.

"A lot of things have to go right between now and then," Mark Zandi, chief economist for Moody's Economy.com in West Chester, said in an interview before he addressed the White House summit. "The policy response to the crisis has to work for the budget to stick to the script."

Administration aides say they inherited a budget deficit of $1.3 trillion and project it at $1.5 trillion by Sept. 30, the end of the current fiscal year.

"So the question is really can they do that [reduce the deficit] as well as implement the agenda that he was elected on," said William Gale, director of economic studies at the Brookings Institution.

Obama's target would put the deficit at 3 percent of gross domestic product. The GDP is a measure of a country's economic activity, and many economists say deficits during a stable economy should amount to no more than 2 to 2.5 percent of GDP. At $1.5 trillion, the deficit would hit 10.6 percent of GDP this year.

Obama's 3 percent goal would still lower deficits only to a range similar to that under Bush. Zandi said the key was whether the deficits would be on a falling path.

Obama is also counting on achieving his deficit target by reducing waste - a perennially elusive aim.

For instance, he wants to halt federal support for huge agriculture companies that do not need the help. He also would end tax breaks for companies shipping jobs abroad. Yet, such companies have staunch defenders in Congress who have fought off such efforts in the past.