WITH the financial crisis over and the recovery gaining momentum, one big piece of unfinished economic business hangs over Barack Obama's second term: arresting the relentless rise in America's already sky-high debt. He is turning to the task with what seems an improbable claim: that the job is closer to completion than people appreciate. There is, however, some truth to it. On February 5th the Congressional Budget Office (CBO) forecast that for the fiscal year ending on September 30th the deficit will clock in at $845 billion, or 5.3% of GDP, the lowest figure since 2008 and down by nearly half from its peak of 10.1% in 2009, Mr Obama's first year in office. To be sure, that projection assumes that Mr Obama and Congress do not override planned spending cuts and tax rises, most importantly the "sequester." The sequester mandates $1.1 trillion of additional spending cuts over the next ten years, including $85 billion-worth this year that are due to begin on March 1st after being put off for two months. Even if those measures are overridden, the CBO still predicts that the deficit will fall to 5.5% this year and 3.7% of GDP by 2015. Thereafter, though, it will start to rise again. The drop has been caused both by the improving economy, which boosts revenues and reduces the cost of safety-net programmes, and the expiry of the few remaining stimulus measures. It has also occurred, as Mr Obama now often reminds listeners, because in spite of their acrimonious relations he and Congress struck two deals in 2011 that cut spending and one at the start of this year that raised taxes. Cumulatively, these three deals have already cut a projected $2.4 trillion from deficits over the coming decade, or a little over 1% of GDP, according to the Committee for a Responsible Federal Budget (CRFB), a watchdog group (see table). That is not enough to stabilise the publicly held debt as a share of GDP. The CBO says this will climb to 87% of GDP in 2023, compared with 73% now, if scheduled spending cuts, such as the sequester, are not allowed to occur and popular tax breaks are extended. The gross debt, the figure used in most other countries, is around 25% higher than that. Mr Obama says that stabilising the primary-debt ratio would take $1.5 trillion more in spending cuts or tax increases over the coming decade, or only about 0.75% of GDP. Yet this comforting diagnosis papers over a more worrying reality. The custom of measuring deficit packages in dollars cut over ten years ignores a critical distinction between different types of deficit reduction. America's budget classifies spending as either mandatory, which means it does not have to be authorised each year by Congress, or discretionary, which means it does. All the long-term pressure on the deficit comes from mandatory spending, in particular the big entitlement programmes - Social Security (pensions), Medicaid and Medicare (health care for the poor and the elderly), and the health-care subsidies created under Obamacare (see chart). The spending cuts to date have fallen almost entirely on discretionary spending, putting both defence and domestic discretionary spending on track to fall steadily as a share of GDP. The sequester would accelerate that, driving both below 3% of GDP by 2020 from more than 4% last year. Cutting discretionary spending is politically appealing because it arouses less anger than cutting entitlements or raising taxes, and because the specifics are left to congressional negotiators each year. Yet it is hardly ideal for the economy. The cuts, occurring at a time when consumers and businesses were busy reducing their own debt, held back the recovery; shrinking federal, state and local government spending have subtracted roughly 1% from GDP, though part of that reflects the winding up of wars in Iraq and Afghanistan. Relentless downward pressure on discretionary spending could also hamper the government's ability to do its job, in both defence (see article) and the civilian economy. Marc Goldwein of the CRFB says that "almost all the investment we do in human and physical capital is on the discretionary, not on the mandatory side." It includes education, research and building transport infrastructure. The sequester, he adds, not only hits the wrong kind of spending; it also ends within a decade, and thus does nothing to solve the long-term problem. It is, he reckons, "just the wrong way to budget." Mr Obama and the Republicans agree; they never intended the sequester to occur. It would be far better to achieve the savings by reforming entitlements. This would allow for the phasing in of changes, thereby limiting the near-term impact on the deficit (and thus the still-vulnerable economy), but significantly compounding the savings over time. Mr Obama has repeatedly said that he is prepared to cut entitlements as part of a broader deal that also raises taxes. He came agonisingly close to such a deal with John Boehner, the Republican Speaker of the House of Representatives, in December. But the deal fell through. On February 5th Mr Obama said the same offers he made in December "are still very much on the table," provided tax revenues are also raised by eliminating deductions for the affluent. He also pleaded for a "smaller package" of spending cuts and tax increases to delay the sequester "a few more months." But the prospects look poor. On January 1st the Republicans accepted a deal that imposed higher tax rates on the rich while getting no spending cuts in return. Arguably they have only themselves to blame, but the outcome makes further deficit reduction much harder. The Republicans say they have ruled out giving in on taxes again, but the Democrats are in no mood to accept big cuts to entitlement programmes unless the tax take rises. Nor do the two sides begin to agree on how entitlements ought to be reformed. Whereas most Republicans believe benefits have to be directly constrained by, for example, converting Medicare to a voucher system, Mr Obama prefers to curb fees to drug companies and hospitals and experiment with different ways of delivering care. Although he did once entertain raising the eligibility age for Medicare, it is unclear that he still does so. To replace the sequester, House Democrats have instead proposed minimum tax-rates for the rich and for oil companies, and trimming farm subsidies. Republicans dismiss such plans. Paul Ryan, chairman of the House Budget Committee, plans to present his own budget soon: it will balance the budget in a decade, presumably with far more radical cuts to entitlements than Mr Obama will tolerate. "I'm expecting the sequester to take effect," he said recently, because he does not now expect to see a satisfactory alternative to those cuts from Senate Democrats or Mr Obama. If Mr Ryan is right, then America's economy will be hit by more painful austerity this year - and the long-term debt problem will be left for another day.