Obama taps spending watchdog, eyes Social Security

Pointing with concern to "red ink as far as the eye can see," President-elect Barack Obama pledged Wednesday to tackle out-of-control Social Security and Medicare spending and named a special watchdog to clamp down on other federal programs - even as he campaigned anew to spend the largest pile of taxpayer money in history to revive the sinking economy.

The steepness of the fiscal mountain he'll face beginning Jan. 20 was underscored by stunning new figures: an estimate that the federal budget deficit will reach $1.2 trillion this year, by far the biggest ever, even without the new stimulus spending.

The incoming president has walked this same tightrope each day this week - advocating fiscal discipline and taxpayer largesse together at nearly every turn, though in every case with little detail to back it up. With less than two weeks to go before taking the helm at the White House, he'll make the same pitch on Thursday, delivering a speech laying out why he wants Congress to quickly pass his still-evolving economic plan.

Last year's U.S. deficit set its own record, but that $455 billion will be dwarfed by this year's. The new estimate, by the nonpartisan Congressional Budget Office, represents more than 8 percent of the entire national economy.

Still, Obama said "an economic situation that is dire" requires immediate and bold action with unprecedented tax cuts and federal programs. More bad news is expected Thursday and Friday on U.S. layoffs, and stocks plummeted anew on Wednesday, wiping out gains from the first week of the new year.

Obama gave his first ballpark estimate of the total amount of the stimulus package expected to emerge from negotiations between his team and Capitol Hill, saying it is likely to hover around $775 billion over two years. That's about $400 billion less than outside economists have said might be needed to jolt the economy but at the top of the range that Obama aides and congressional leaders have discussed publicly.

"We're going to have to jump-start this economy," Obama said. "That's going to cost some money."

The president-elect said concerns about increasing the deficit to unmanageable levels swayed him against the higher figures advocated by some.

House Speaker Nancy Pelosi also pressed for passage of a recovery bill, though the mid-February timeline she offered represented another slip in the date by which the package would be ready for Obama's signature. Initially, the goal was to have it finished by the time he takes office a week from next Tuesday.

Obama's repeated emphasis amid the stimulus talk on a need for spending control is aimed in part at attracting more support from deficit hawks in Congress.

He said Wednesday, without details, that his initial budget proposal next month will include "some very specific outlines" of how he plans to tackle spending. That extends to the ballooning and so-far unsolvable fiscal problem presented by the Social Security and Medicare programs, which Obama promised would be "a central part" of his deficit-reduction plan.

The stimulus package is expected to easily pass Congress, now controlled by solid Democratic majorities in both houses. But since it is the first major legislative test of an administration that promised to usher in a new era of bipartisan cooperation, and a measure of such enormous scope and import, Obama doesn't want to see it approved on a merely party-line vote.

On Wednesday, he made good on a campaign promise and introduced his choice for a new White House post he is creating: chief performance officer. Nancy Killefer, a professional efficiency expert, is charged with scouring the federal budget to eliminate programs that don't work and improve those that do. Obama called her appointment "among the most important that I will make."

"We committed to changing the way our government in Washington does business so that we're no longer squandering billions of tax dollars on programs that have outlived their usefulness or exist solely because of the power of a lobbyist or an interest group," Obama said.

Killefer, the director of a management consulting firm and a former assistant treasury secretary will be Obama's hatchet woman, with power to recommend directly to him the slashing of programs and projects government-wide. She'll help agencies set performance standards and hold managers accountable.

But she also will run up against a long history of other chief executives' similar promises under different titles that have fallen short.

She said the bureaucracy's entrenched problems have taken decades to develop and will take time to fix. But she said it would be different this time. "I have seen it done," Killefer said at Obama's side.

Obama has to give Congress in early February a budget request - at least the bare bones of one - covering spending for the next fiscal year. Because that's so soon after he takes over the executive branch of government, his submission won't be anything like the usual one that fills several volumes and hundreds of pages.

Pelosi, speaking before the House Democratic Steering and Policy Committee, offered her own assurance that the stimulus plan would be responsible and that Democrats are committed to long-term fiscal discipline.

Economist Martin Feldstein joined others talking to the congressional panel to endorse the need for a big short-term spending package. But he also warned against anything that could create a spending habit and swell the deficit even further. "There should be an exit strategy," he said.

For all the talk of belt-tightening, minority Republican leaders sounded only cautiously optimistic.

"We cannot borrow and spend our way back to prosperity when we're already running an annual deficit of more than one trillion dollars," House Republican leader John Boehner of Ohio said. "I was pleased to hear the president-elect say yesterday that we need to stop just talking about our national debt and actively confront it."

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Associated Press writer Jim Kuhnhenn contributed to this story.