Obama's Entitlement Opportunity

By FRED BARNES

President Obama's commission on reducing the deficit has provoked loathing and laughter. The loathers—conservatives mainly, including me—fear it will recommend a value-added tax as America's only hope of averting a severe debt crisis. The laughter? It comes from the many who expect the commission to deadlock and fail to propose anything substantial.

No, there's little likelihood it will endorse personal investment accounts carved out of payroll taxes paid by individuals into the Social Security system. Democrats—12 members were picked by Mr. Obama or Democratic leaders in Congress—are dead set against private accounts. And Republicans can be counted on to oppose a substantial increase in the level of income subject to the Social Security payroll tax, much less agree to a VAT. A recommendation by the commission requires 14 votes.

One reform that could win bipartisan support would, over time, raise the Social Security retirement age to 70. An extension of retirement age to 67 from 65 was pushed in 1983 by the Greenspan Commission, along with a boost in the income base for payroll taxes. President Reagan backed the changes and Congress enacted them.

A second reform, bolder and more controversial, would means-test Social Security, gradually slowing the growth of benefits for the more affluent but sparing those with lower incomes. The model for this is the Pozen plan, the brainchild of Robert Pozen, a former vice chairman of Fidelity Investments and influential Social Security reformer.

The Pozen strategy would utilize a formula called "progressive indexing." Future retirees with higher incomes would see their benefits rise less than under the current formula, those with low incomes would continue to get full increases, and the benefits of those with middle incomes would rise according to a sliding scale. Current Medicare recipients would not be affected.

No one, not even those with high wages in the years on which their Social Security benefits are calculated, would face an actual reduction. Under the Pozen plan, higher income workers would have increases in their benefits based on inflation, while those with low incomes would continue to have theirs based on the more generous index of wages.

The great attraction of the Pozen plan is that it would erase more than two-thirds of Social Security's long-term shortfall of $4 trillion. (The 2010 shortfall is $29 billion.) The downside is that many Democrats opposed the plan when President Bush endorsed a version of it in 2005 when he was promoting broad reform of Social Security.

They still have qualms about the Pozen solution, chiefly because of fears the plan would lead to two bad results, one intended, the other not. Under Pozen, not only the well-off but some of the middle class would see benefits grow less than under current rules. That's the intentional part. Liberals also worry means testing would transform Social Security into a welfare program, putting its funding in political jeopardy.

The key figure here is Mr. Obama. The commission, officially known as the National Commission on Fiscal Responsibility, is ostensibly independent. But that's a Washington fiction. Democrats on the commission are neither going to deny Mr. Obama a major reform he wants nor recommend one he opposes. If he favors extending the retirement age and the Pozen plan, they will too.

And Mr. Obama has indicated recently he's looking to the commission for serious debt reduction. "We now have to, in a gradual way, reduce spending, particularly on those big ticket items" such as Social Security and Medicare, he said in Racine, Wis., recently. "That's going to be our project for the next couple years."

Another clue to Mr. Obama's thinking on entitlement spending: The two men he appointed as the co-chairs of the commission, Democrat Erskine Bowles and former Sen. Alan Simpson of Wyoming, a Republican. Both have pushed for Social Security reforms in the past, though Mr. Bowles's role in masterminding a near miss at bipartisan overhaul of entitlements in 1997 is not well known.

Mr. Bowles, soon to retire as president of the University of North Carolina, was President Clinton's chief of staff when Mr. Clinton and House Speaker Newt Gingrich secretly agreed to a sweeping plan to reform both Social Security and Medicare. Mr. Clinton was to announce the broad outlines of the plan in his State of the Union address in January 2008. Mr. Gingrich would respond with favorable comments. Reform of Social Security would quickly be approved by Congress. Steps to control Medicare spending would be left to a presidential commission to figure out.

An intervening event killed the agreement. News of Mr. Clinton's trysts with Monica Lewinsky broke days before the State of the Union. The plan was immediately scuttled, never to be reactivated.

But Mr. Bowles hasn't lost interest in reforming entitlements. In 2006, Steven Gillon, author of "The Pact: Bill Clinton, Newt Gingrich, and the Rivalry that Defined a Generation," confronted him with notes from the secret meeting between Messrs. Clinton and Gingrich. Mr. Bowles said the failed attempt at an historic compromise was the reason he ran for the Senate from North Carolina in 2002 and 2004. He lost both races. "That is why I wanted to go back to Washington," he told Mr. Gillon. "Because I saw what you could accomplish when the two sides are willing to work together." Now he's back.

Mr. Simpson is a longtime proponent of restraining Social Security and Medicare spending, a fact Mr. Obama must have known when he named him co-chair. The appointment has infuriated liberal bloggers who frown on tinkering with Social Security.

Even if the commission follows through and proposes concrete cost savings, nothing is guaranteed on a politically touchy issue like Social Security. Congress would have to approve any changes, and House Speaker Nancy Pelosi has criticized Republican calls to raise the retirement age. It's also clear the commission won't agree on Medicare. After cutting Medicare spending as part of the health-care bill, Democrats are leery of further Medicare reductions.

The commission, which reports in December after the midterm election, could give Mr. Obama an advantage Mr. Bush didn't have five years ago. He'd have bipartisan cover to go full tilt to enact meaningful reform of Social Security. Mr. Bush was on his own and attracted little support, either from Republicans or Democrats.

With record peacetime deficits and soaring debt, Mr. Obama needs to do something about future deficits to pacify anxious credit markets.

Mr. Barnes is executive editor of the Weekly Standard and a commentator on Fox News Channel.