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Entitlement reform must be on the table

By Editorial Board,November 14, 2012

AS BIPARTISAN negotiations over avoiding the “fiscal cliff” draw nearer, many of President Obama’s core Democratic supporters are urging him to fix the debt through defense cuts and tax increases rather than by tackling Social Security, Medicare and other federal entitlement programs. It’s a reprise of progressive resistance to the entitlement trims Mr. Obama contemplated during the abortive debt-reduction negotiations with House Speaker John A. Boehner (R-Ohio) last year. This time, though, the Democratic base is claiming vindication in the just-completed election.

Fair enough. Mr. Obama won on a pledge to raise more revenue from the wealthy, and labor unions and like-minded groups provided much of the funding and many of the foot soldiers for his campaign. Nevertheless, on this he must tell his political base no. Any serious debt-reduction plan has to include revenue and defense cuts. But no serious one can exclude entitlements.

With Republicans in control of the House and holding 45 votes in the Senate, this is basic political realism. It’s also fiscal realism, as the most recent Congressional Budget Office review of the long-term budget outlook, published in June, explained. Spending on retirement income and health care is headed inexorably higher as the population ages. In 2012, Social Security, Medicare and Medicaid accounted for 10.4 percent of gross domestic product (GDP). All other non-interest federal outlays, defense included, totaled 11.6 percent of GDP. If present policies and population trends continue, the three entitlement programs would grow to 12.9 percent of GDP by 2022, while all other spending would shrink by 4 percentage points as a share of GDP.

It’s eminently possible to rein in entitlements without imposing hardship on the neediest. A reform Mr. Obama considered during the 2011 talks — gradually raising the Medicare eligibility age from 65 to 67 — would save roughly $150 billion over 10 years, according to the Congressional Budget Office, while aligning the program with modern life expectancy. With health-care reform now entrenched, those younger than 67 need not fear going uninsured.

Social Security’s retirement age is already headed to 67, which is one reason that program is no longer a major cause of government insolvency. Still, it can and should be rendered more sustainable. The disability component’s explosive recent growth, at a time when the nation’s general health is stable, suggests that reform would not harm those who truly need help.

Using a more realistic measurement of annual inflation, another option discussed last year, would trim $112 billion from Social Security over 10 years. These savings come not from cuts in benefits but reductions in their planned growth. Workers for the most part would still get more from Social Security than they contributed. Applying more accurate inflation measures to other programs could save an additional $187 billion.

At his news conference Wednesday, President Obama called for “a serious look at how we reform our entitlements,” advocated “compromise” and pronounced himself “ready and willing to make big commitments” on debt reduction. Sounds like a man who understands what is needed.