President Barack Obama named a bipartisan panel on Thursday to tackle exploding U.S. budget deficits and promised it broad leeway to recommend ways to put the country on a path to fiscal responsibility.

Everything's on the table. That's how this thing's going to work, Obama told reporters after tapping former White House chief of staff Erskine Bowles, a Democrat, and former Senator Alan Simpson, a Republican, to lead the 18-member commission.

Obama's comments suggested the panel would have the latitude to consider any proposals to cut government spending -- which he warned had become extravagant -- and raise taxes.

But any recommendations would have to be approved by the bitterly divided Congress, which could be reluctant to take the unpopular steps necessary to stem the tide of red ink amid heavy lobbying by outside interest groups in the months before a congressional election.

Obama promised during his campaign that families making less than $250,000 would not face tax increases but recently said he was agnostic about whether the panel could consider middle-class tax hikes.

Facing political pressure and investor anxiety over mounting government debt, Obama asked the commission to come up with a strategy to balance the budget, excluding interest payments, in five years.

I'm asking them to produce clear recommendations on how to cover the cost of all federal programs by 2015 and to meaningfully improve our long-term fiscal picture, he said. I have every confidence that they'll do that.

To achieve the goal, Obama paired Simpson, a tall, rangy former legislator from Wyoming, with the bespectacled Bowles, who has a patrician bearing as a North Carolina banker.

The administration estimates the panel's recommendations could bring annual budget deficits down to 3 percent of gross domestic product. The White House forecast a $1.6 trillion budget deficit this year, or about 10.6 percent of GDP.

Economists say 3 percent annual deficits could keep the debt from soaring further, but some fiscal hawks lament that Obama is not setting a more aggressive goal.

The panel's recommendations must be reported to Congress by December 1.

SYMBOLIC GESTURE?

Analysts said the commission would be only a symbolic gesture unless legislators muster the will to take action. Obama used an executive order to form the panel because the Senate was unable to even pass a plan to create its own.

Both sides need to probably slaughter some sacred cows, and right now I don't think that there's political will on either side -- the well is so poisoned, said Chris Krueger, an analyst with Concept Capital, which tracks Washington for institutional investors.

The commission has been called a way to provide political cover for Obama and Congress in case they implement unpopular measures such as raising taxes to close the budget gap.

Republicans, who have remained remarkably unified against Democratic proposals on a host of issues, made clear they back spending cuts to trim the deficit and oppose tax hikes.

Americans know our problem is not that we tax too little but that Washington spends too much -- that should be the focus of this commission, Senate Republican leader Mitch McConnell said in a statement.

McConnell will participate by naming members to the commission, a spokeswoman said.

With Republicans hoping for big gains in November congressional elections that could hand them control of the House of Representatives or Senate, they have little incentive to support the Democratic president's efforts.

Obama's fellow Democrats praised the choice of Bowles and Simpson, although some worry about shifting focus too soon on deficit reduction while the economy remains fragile.

Their selection as co-chairs indicates that the Obama administration is serious about making this process work, said Senate Budget Committee Chairman Kent Conrad, whose similar proposal failed in the Senate last month.

Obama said encouraging businesses to create jobs would remain his top priority, but said he had to act on the deficit. There's no doubt that we're going to have to also address the long-term quandary of a government that routinely and extravagantly spends more than it takes in, he said.

The panel will have 18 members, 12 to be appointed by Democratic and Republican leaders in Congress, and six by Obama. No more than four of Obama's choices will be from the same political party. Fourteen of 18 votes on the panel will be needed to report recommendations.

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