BOB MOON: The new year brings a new list of priorities at the White House. And high on that list will be reining in the runaway cost of entitlements. The big three federal entitlement programs are Medicare, Medicaid and Social Security. Anxious baby boomers can tell you they're all headed for bankruptcy. And it may come down to this:
Can a White House accustomed to friendly majorities in Congress come together with newly empowered Democrats to find a grand compromise?
Marketplace's Washington Bureau Chief John Dimsdale looks at the chances.
JOHN DIMSDALE: President George Bush knows the expectations for legislative success in 2007 are low.
PRESIDENT BUSH: You know, there's a lot of attitude here that says "Well, you lost the Congress. Therefore, you're not going to get anything done." Quite the contrary. I have an interest to get things done. And the Democrat leaders have an interest to get something done to show that they're, you know, that they're worthy of their leadership roles.
After years of partisan gridlock, the idea that there could be progress on entitlements seems especially remote. But it's necessary. At the present rate, Social Security, Medicare and Medicaid will eat up the entire federal budget by the year 2037. And there's some talk that something could be done about that in 2007.
JOHN SPRATT: These stars are aligned.
That's John Spratt, a seasoned Democrat from South Carolina who's the incoming chairman of the House Budget Committee.
SPRATT: The Administration has three players who are well-received on Capitol Hill. I'd say that for Josh Bolton. Certainly that applies to Rob Portman because he was one of us. He was in the House and we all like Rob and respect him. And, in addition, it covers Hank Paulson.
Spratt and other Democrats say they've noticed a change in tone from the White House on entitlements, ever since the recent arrival of Treasury Secretary Paulson. Budget Director Rob Portman, also new to the job, is part of the White House outreach.
ROB PORTMAN: Democrats, Republicans alike understand there's a problem. Some have not been willing to talk about it publicly, particularly coming up to the elections in 2006. Now that those elections are behind us, I think there's an opportunity to try to take some of the good private discussions we've had to a more public level and begin to talk about solutions.
So far, before the heat of the legislative battle to come, both sides say every idea must be part of the solution. That means trimming benefits, raising taxes, allowing private medical and pension accounts, making investments in the stock market. Jason Furman, who worked on Social Security reform under President Clinton, agrees everything has to be on the table. He says that wasn't the case last year.
JASON FURMAN: The President was not bipartisan in his approach. And the Democrats didn't have the security that they could control their end of the process if they got into a negotiation. Hopefully, both of those factors will change in the upcoming year.
The window of opportunity will be short. Before long, presidential campaigning will crowd out reasoned compromise. And most experts say entitlement reform is too big to be the first order of business. Former Democratic Congressman Tim Penny, who advised President Bush on Social Security reform, says smaller steps — such as raising the minimum wage or negotiating Medicare drug prices — will have to be taken first to establish trust between the two sides.
TIM PENNY: If there's success on some of those issues, then I think it might be more possible for Bush and Democratic leaders to find their way to create either a commission on these issues or at least a high-level summit.
Both Budget Director Portman and Congressman Spratt call entitlement reform the challenge of our generation. But they're not getting carried away by today's optimism.
PORTMAN: I must tell you I'm a little skeptical, given what's happened since the early 1980s, which is the last time we really had a major effort at reforming entitlements.
SPRATT: I'm not optimistic, but I do think it is doable. I wouldn't rule it out of hand by any means if there's the right kind of leadership.
There is a growing consensus that Medicare and Medicaid reform will have to await broader healthcare reform. And that won't come until after the next presidential campaign. But solutions for Social Security are out there. And a new, divided government in 2007 presents an opportunity to agree on them. But Jason Furman, who tried to coax a compromise before, is not so sanguine.
FURMAN: It's never easy. It's never likely. It's looking a little bit easier and a little bit more likely than it has for a number of years. If you had to ask me to bet with even odds, I'd bet against Social Security reform for next year.
In Washington, I'm John Dimsdale for Marketplace.