As baby boomers enter the starting gate into retirement, the cost of America's entitlement programs – foremost, Social Security, Medicare, and Medicaid – is projected to balloon to levels that are unsustainable.
Already, those three programs make up 40 percent of the federal budget. If reforms are not enacted, Social Security will eventually go bust; in 40 years, on the current path, the two medical programs alone could equal the size of today's entire federal budget according to the US Government Accountability Office.
Experts tend to agree on the projections, but is it a crisis? In the hyperpartisan atmosphere of the 2008 presidential campaign, the topic of entitlement programs is also a matter of dispute between parties. Former Sen. Fred Thompson (R) of Tennessee, the most impassioned candidate on entitlement spending, suggests that it's the nation's most important domestic problem – and, alone among the top-tier Republican candidates, is willing to take the risky step of discussing cuts in benefits. Most Republicans stick with the safer position of saying what they won't do – raise taxes – or proposing a new commission to study the problem. The Democratic candidates call entitlement spending a long-term challenge, and assert that there's plenty of time to work out a solution. They tend not to bring up the subject on the stump, but when asked, they repeat their opposition to the "privatization of Social Security," a refrain from the days of President Bush's ill-fated effort to make private accounts a part of the program.
"Democratic voters are not at all convinced that there's a problem, because they believe in many ways that this is something that was kind of contrived by the administration in an effort to privatize the system," says Maya MacGuineas, president of the Committee for a Responsible Federal Budget. "They see people using crisis rhetoric as a big exaggeration."
And so, she says, Democratic candidates tend not to stick their necks out by making proposals.
Sen. Hillary Rodham Clinton (D) of New York has not issued a plan, because "we don't have a crisis in Social Security," she told the Boston Globe recently. "We have a long-term solvency challenge we can meet if we're smart about it."
After missing the AARP forum for Democratic presidential candidates last month, Sen. Barack Obama (D) of Illinois laid out his ideas on retirement security in an Iowa newspaper, the Quad City Times. Even though the Social Security system is "not perfect," the piece said, the problem is "relatively small and can be readily solved."
He then said he would "fight against efforts to privatize Social Security" and would not cut benefits or raise the retirement age. He also discussed the possibility of removing the cap on Social Security taxes. "If we kept the payroll tax rate exactly the same but applied it to all earnings and not just the first $97,500, we could virtually eliminate the entire Social Security shortfall," he said.
Republicans call that a tax increase, and would never stand for a complete lifting of the cap. The ultimate solution to the structural problems of entitlements is likely to be a combination of benefits reductions and tax increases, and the sooner action is taken, the less Draconian the solutions – especially as the big demographic wave known as the baby boom begins to retire, budget experts say.
For now, candidates are focusing on getting nominated, and are appealing to key constituencies with their own parties. Former Senator Thompson, who entered the race only last month, has sought to make inroads with fiscal conservatives with his talk on entitlements. Unlike the other candidates, he has made the issue a regular theme in his stump speech, and maybe more important, it's the issue that really seems to get him going.
"The one thing that all the experts agree on … is that we're in an unsustainable position economically with regard to these programs," he recently told the anti-tax Club for Growth. "You'd think that would be the biggest thing we could talk about, other than national security. So we've got to talk about it."
Thompson intends to unveil a plan for entitlement reform in the coming weeks, according to his spokesman, but he has already been floating ideas, such as slowing the rate of Social Security benefit increases – a move that would, in effect, cut benefits. On Medicare, he suggests increasing fees for upper-income beneficiaries. To imply such moves puts Thompson in danger of touching the so-called "third rail" of politics – and he acknowledged that risk in a speech last month he gave to The Club For Growth.
But he gets credit, at least, from deficit hawks, who have been touring the country trying to educate the public on the structural problems in Social Security and Medicare. "There is an opportunity for leadership on this issue, because people are not expecting politicians to tell them the truth on this," says Bob Bixby, executive director of the anti-deficit Concord Coalition. "And while you would certainly catch fire from your opponents by putting forth specifics, I think the public would respect that person as a leader for taking a position."
If the issue gets more heated as the campaign progresses – especially when the parties have nominees, and the partisan divide on issues grows sharper – there's a danger that candidates will get locked into promises that make an eventual compromise harder to achieve.
But at the same time, analysts say, public debate is needed in order for the shape of an agreement to emerge. "This is the kind of issue that takes a couple of years to develop a consensus around a solution," says Stan Collender, a budget expert at Qorvis Communications.
[Editor's note: The original headline and subhead incorrectly stated that Republican Fred Thompson alone among the '08 candidates was tackling the issue.]