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Archive for Wednesday, February 15, 2006

Compromise is key to entitlement reform

February 15, 2006

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Possibly one of the last known copies of the 1995 Kerrey-Danforth entitlement commission report sits on a bookshelf in my office. The report is great to look at, with colorful charts that show the federal budget drowning under a tide of spending on Medicare, Medicaid and Social Security.

But the study disappeared without a trace.

The commission was appointed by President Clinton and headed by two centrist senators committed to fiscal sanity: Nebraska Democrat Bob Kerrey and Missouri Republican John C. Danforth. (Both have since left the Senate.) It spent 10 months studying the problem.

But although Kerrey and Danforth agreed to a set of ambitious proposals, they could not unite a majority of their commission behind any plan. The group splintered into irrelevance.

That crackup should caution President Bush, who pledged in his State of the Union address to appoint yet another commission on entitlements. A commission can be useful only if it recognizes that at this point, the solution to the entitlement problem doesn't require an intellectual breakthrough. It demands something even more rare these days: a political accommodation between the parties.

"This is not like some mathematical formula that people have been trying to solve for 1,000 years," said Kerrey, now president of The New School university in New York. "There are a finite number of things that you can do ... but they are all extremely difficult to do politically."

Bush deserves credit for spotlighting a genuine problem. As America grays through this century, it will face an unsustainable gap between anticipated federal revenues and promised spending for Medicare, Medicaid and, to a lesser extent, Social Security. In 1990, those three programs cost an amount equal to 6.7 percent of America's economy. The Office of Management and Budget projected last week that that number was on track to more than double, to 14.3 percent, by 2040.

But Bush has little chance of addressing this problem unless he changes his political approach. Last year, he tried to restructure Social Security to create private investment accounts (an idea resurrected in his new budget). Earlier, Bush proposed to transform Medicare into something like a voucher system that would provide seniors a fixed sum of federal money to purchase private health insurance.

Both efforts failed because nearly all Democrats opposed them. The lesson is that entitlements are too politically explosive for one party to impose a solution on the other. Either the parties will work together or nothing will happen.

Indeed, any viable entitlement reform plan would require each party to abandon a deeply cherished fantasy - and both of them to confront an issue absent from Washington's agenda for too long.

The Democratic fantasy is that entitlement spending could continue at its current rate if Washington simply raised more money. On their current trajectory, entitlement costs eventually would push federal spending - measured as a share of the economy - to levels not seen since the height of the government mobilization for World War II. It's implausible that Americans would accept taxes in peacetime high enough to meet such a burden.

The Republican fantasy is that it's possible to confront this problem without raising taxes. Even with painful cuts, the growing senior population and rising healthcare costs ensure that in coming decades Washington will spend significantly more on entitlements.

Any serious reform plan, for instance, might raise the age of eligibility for Social Security by indexing it to the increase in life expectancy. Politically, that would be excruciatingly difficult. But it would save an amount equal to only about 1 percent of gross national product. Entitlement spending, as a share of the economy, would still double over the next generation.

If Bush rules out tax increases, his commission almost certainly will be stillborn because nothing it proposes will attract bipartisan support. Even Kerrey, who has unflinchingly urged limits on entitlement spending, said if Bush excluded revenue increases, "My recommendation to anybody he asks to be on the commission is, 'Just say no.' "

Even with tough cuts and higher taxes, Washington won't tame the entitlement problem without also slowing the overall increase in healthcare costs - the crucial factor in government's rising tab for the elderly. That won't happen without comprehensive health-care reform, an issue Washington hasn't addressed since the collapse of Clinton's universal coverage plan in 1994.

Spending cuts, tax increases, comprehensive health-care reform: Each is indispensable for placing America's obligation to the elderly on a sustainable path. Unless Bush is willing to use all those tools, and involve both parties, history suggests he might as well save the trouble of producing another report doomed to be filed under forgotten on bookshelves around the capital.

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