Obama willingness to get specific in SOTU on long term fiscal challenges in doubt

The unemployment rate and the nation’s increasingly precarious fiscal position – its enormous budget deficits and its ballooning debt – will be the dual points of emphasis in President Obama’s second State of the Union address on Tuesday.

But the president is limited in what he can do to make the doddering economic recovery move any faster. Many in Washington will be looking most closely for what specific steps President Obama proposes to deal with the deficit and debt. And unlike past years, there is a broadly shared feeling that he should offer up real, substantive and even somewhat politically risky proposals.

There are several directions he could go in. But interviews with several close observers of the issue yielded one thing they said he must do above all: make a compelling case to the American people that painful and unpalatable measures to put the nation’s books in order are necessary, and that all Americans will be negatively affected by such actions in the years ahead.

“He has to prepare the country for the kinds of tough choices that are required to stabilize the debt,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

Explaining the situation and the stakes is one part of this. Many Americans hear lip service paid to the deficit and national debt, but many casual observers probably do not know the difference between the gap left when government revenues do not match up to spending ($1.3 trillion) and the amount of money borrowed from creditors and still owed back to them ($14 trillion).

Far more complicated is the risk in the next few years of a credit crisis similar to that of those in Greece and Ireland. The possibility of the federal budget being eaten up by entitlement spending and interest on the debt over the next decade or two adds yet another level of difficulty.

“There may well be US public debt tremors this year, both during federal debate over raising the debt ceiling and with at least a limited number of crises in local and city governments. The bigger problem, though, lies beyond 2011, as the unsustainability of the federal government’s fiscal trajectory becomes increasingly clear,” said Peter Orszag, Obama’s former White House budget director, in an op-ed published online by the Financial Times late Thursday night.

“I hope it does not ultimately require a crisis to restore fiscal sustainability at the federal level, but I fear it will,” Orszag said, in one of the more ominous pronouncements by a prominent economic official to date.

Whether Obama goes into specifics about what to do is another matter. There has been some expectation that Obama cannot give another speech that pays lip service to the need for fiscal reforms but does nothing to put his own neck out in favor of definitive steps.

“If he punts … that will be viewed as a real abdication of responsibility,” said James Capretta, a former senior budget official in the Bush administration now at the conservative Ethics and Public Policy Center.