Why does Washington keep putting off entitlement reform?

Both the White House and Republicans agree that entitlement reform is necessary to rein in federal deficits, but nothing ever gets started. That could change in the weeks ahead.

J. Scott Applewhite/AP/File
House Ways and Means Committee Chairman Rep. Dave Camp (R) of Michigan attends a hearing on Capitol Hill in Washington last year. His committee will be key to entitlement reform.

When President Obama visited with House Republicans last month, Rep. Dave Camp of Michigan had a question: Why not move ahead with the entitlement changes that both parties agree on right away?

Because, Mr. Obama reportedly said, nothing is happening on entitlements without new tax revenues.

That’s the same standoff the parties have faced for all of the Obama administration. But the debate may get a fresh injection of specifics from both sides as Washington appears ready for another round of “grand bargain” derring-do this summer as the government again approaches its debt limit.

From the Democratic side, the White House is expected to release a long-awaited budget plan next week that will likely offer details on what the president wants as new tax revenue. While Senate Democrats passed a budget plan last month that asked for $975 billion in new revenue, it proposed only a general plan to eliminate tax breaks and deductions that benefit the wealthy.

On the Republican side, Representative Camp announced this week that the Ways and Means Committee, which sets tax policy and of which he is the chairman, will begin a series of hearings on the points of agreement between Obama and the GOP conference on entitlement reform.

“The president has repeatedly called on Congress to act on policies we can agree on, and he has stated that we should not let our differences get in the way of making progress. Given the bipartisan support for various reforms to these programs, there is no reason we cannot roll up our sleeves and get this done,” Camp said in a statement.

It is an intriguing move and a “great idea,” says Pete Davis of Davis Capital Investment Ideas.

The hearings could unstick the debate by starting a conversation about what is really necessary to make a solution possible. “Those things are going to be part of a super deal if the 2 percent chance of a super deal ever comes true,” says Mr. Davis.

What will the Ways and Means Committee be talking about?

One idea is to adopt an index called “Chained CPI” for adjusting government benefits including Social Security. The index rises more slowly than the current cost-of-living adjustments based on inflation because it assumes consumers will be able to shift some spending from goods with rapidly rising prices to similar goods with lower price tags.

There will also be hearings on the potential to raise the Medicare eligibility age, cut Medicare’s subsidies for wealthier seniors, and adjust coverage for Medicare’s insurance and prescription-drug coverage.

Liberals bitterly contest such changes. Progressive group MoveOn.org and former Labor Secretary Robert Reich released a video on Thursday demonstrating why switching to chained CPI could crimp spending for vulnerable seniors, chiefly because they can’t easily adjust spending on the biggest part of their budget, health care, Mr. Reich argues.

But getting the debate out into the open could allow traditional Republican proposals to collide with new ideas now percolating.

For example, the Urban Institute recently released a series of proposals on health entitlements including a middle ground on raising the Medicare eligibility age: raise the age two years to 67, as conservatives want, but allow people to buy into the system at age 65 and 66, with subsidies for poor and lower-income Americans. The idea piqued the interest of some in the GOP, Politico reported.

The Urban Institute also suggested a 0.5 percent hike in the Medicare payroll tax starting in 2017 and an income-related cap on what Medicare patients would have to pay out of their own pockets.

In addition, Camp and Rep. Fred Upton (R) of Michigan are mulling legislation to permanently fix the "doc fix" – the money Congress has to pay every year to avoid a scheduled cut to what Medicare pays physicians. So far, lawmakers have not been able to figure out how to offset that money with other spending reductions in order to eliminate it in perpetuity.

“We recognize that the uncertainty over potentially devastating reimbursement cuts makes it difficult for practices to plan for the future,” said a joint statement from Camp, Representative Upton, and Rep. Kevin Brady (R) of Texas. “This uncertainty affects decisions to hire necessary staff and make investments in practice improvement.”

The hearings could be doubly important because House Speaker John Boehner (R) of Ohio has vowed not to have any more closed-door negotiations with the president. That makes a public vetting of entitlement-reform proposals a potentially important step in determining how far Republicans will go in an eventual “grand bargain” negotiation.

The problem? Legislative procedure means that no part of the entitlement reform agenda is likely to go anywhere by itself.

Only the House can originate tax legislation, which means that the Democratically controlled Senate – which will want to raise tax revenue – would likely amend any bill that comes from the House to add tax provisions that House Republicans don't want.

To produce a bill both the House and Senate will like, the details will need to be worked out in advance. “That’s why you have to do [entitlement reform] as part of a broader deal,” Davis says.

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