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Jewish World Review July 31, 2001 / 11 Meanchem-Av 5761

Morton Kondracke

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Consumer Reports

Bush reforms for seniors impeded by tax cut


http://www.jewishworldreview.com -- SIGNIFICANTLY, President Bush has proposed worthy reforms for Social Security and Medicare, but they face political and financial trouble -- some of his own making.

The biggest problem is Bush's $1.35 trillion, 10-year tax cut, which will make it practically impossible to pay the cost of setting up private Social Security accounts and anything but a stripped-down Medicare drug benefit.

The administration's near-term program to set up a massive drug-purchasing cooperative for seniors and give them discount cards is being attacked in court by the pharmacy industry as a secretly concocted illegal raid on its profits -- an accusation Bush aides deny.

At the same time, the president's ideas for retirement reform face intense ideological opposition from Democrats, who prefer to keep Medicare and Social Security basically as they are -- but with additional funds to sustain or increase benefits.

The vast gap in the viewpoints of Republicans and Democrats suggests that nothing will be done to change either program until after the 2002 elections -- and maybe not until after 2004.

In both elections, as in recent ones, seniors will be a crucial swing voting group. Democrats may have an advantage if they revive charges that Bush's reform plans are risky and unnecessary.

The president unveiled his principles for Medicare reform in mid-July, and his Social Security commission last week issued its first report, in which it asserted that the system's "crisis of confidence is real."

According to the commission, Social Security surpluses will stop growing in 2008 as the baby boom generation retires, and by 2016, the system will collect less in payroll taxes than it is committed to pay out.

By 2038, the report warns, the government will either have to raise payroll taxes or cut benefits in order to stay solvent -- or else seek a rescue from general revenues, putting the government deeply back into debt.

Instead, Bush favors allowing younger workers to invest part of their payroll taxes in government-monitored private markets, where they are likely to bring in a higher return than government bonds.

Democrats, though, cite the current downturn in the stock market as proof that private investment of Social Security funds is risky and might lead to huge government bailouts in the event of a sustained recession.

Acknowledging that most Americans save too little, Democrats are willing to create a private investment system as an add-on to Social Security, but not as a substitute.

It would be smart for Bush and his Social Security commission to accept the add-on idea as a starting point. In no time, as workers saw how much more money they were accumulating in private accounts than they had in government retirement guarantees, they'd likely demand the right to invest their Social Security money too.

However, Bush has foreclosed that option with his tax cut, which leaves too little money to create either tax-deferred private accounts or private Social Security accounts. Either plan would cost roughly $1 trillion over a decade.

Meantime, Bush also envisions an insurance-based Medicare system to replace the heavily government-regulated system that's been serving seniors since 1965.

Democrats and the administration favor giving seniors a prescription drug benefit, but Democrats want little reform of Medicare as a whole, while Republicans want a lot -- giving older people the same kind of coverage options that federal employees enjoy.

The Senate Finance Committee was scheduled to vote out a Democratic prescription drug plan soon -- pared down from $500 billion to $300 billion to fit into this year's budget resolution -- but consideration was postponed. Evidently, Democratic leaders feared they lacked the votes to pass the measure and that a Bush-friendly reform alternative sponsored by Sens. John Breaux, D-La., and Bill Frist, R-Tenn., might prevail.

Anticipating a delay in passage of Medicare reform, the administration proposed a short-term prescription drug discount card system, but that, too, has run into roadblocks.

Two groups representing chain drugstores and independent pharmacies have filed suit, declaring the plan was concocted in secret negotiations with private drug brokers and that the government has no right to create such a system without action by Congress.

Tom Scully, Bush's reformist administrator of the agency that oversees Medicare, told me that the charges are false because the government is empowered to lend the Medicare name to groups of its choosing. He also said the nation's top five prescription benefit managers did not help design the program.

Scully did acknowledge that up to 14 million seniors will save 10 percent to 15 percent on their drug bills, costing either drug manufacturers or pharmacies about $20 billion a year. But he claimed that the program could be set up without congressional action. That claim will be tested in court.

The drug discount idea is a good one. So are private savings accounts for younger workers and a Medicare system that runs on the principles of insurance choice and competition instead of bureaucratic decree.

Nevertheless, Bush has an uphill road ahead in selling his ideas. He's a reformer, but he's going to have a hard time delivering results -- and his own tax cut is partly to blame.



JWR contributor Morton Kondracke is executive editor of Roll Call, the newspaper of Capitol Hill. Send your comments by clicking here.

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