Federal budget deficit to balloon

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By David M. Dickson

Mr. Obama has always opposed any privatization of Social Security. He also opposes reducing Social Security benefits for "current and future beneficiaries alike," including raising the retirement age. Mr. Obama says he is considering assessing a Social Security tax in the range of 2 percent to 4 percent on income above $250,000. Currently, only the first $102,000 in wage and salary income (adjusted for inflation each year) is subject to a 12.4 percent Social Security payroll tax, which is split between employee and employer. Mr. Obama would eliminate income taxes for seniors earning less than $50,000.

Medicare fireworks

In early October, after Douglas Holtz-Eakin, Mr. McCain's chief economic adviser, told the Wall Street Journal that the Republican candidate planned to pay for his health care plan in part by achieving savings in Medicare and Medicaid, the Obama campaign charged that Mr. McCain would cut Medicare by nearly $900 billion over 10 years, representing "a 22 percent cut in benefits."

In a conference call with reporters, Mr. Holtz-Eakin insisted that the McCain plan would provide seniors with "exactly the same benefits."

One McCain reform that would generate cost savings would subject the prescription-drug subsidy to a means test. Mr. McCain voted against the 2003 Medicare prescription-drug plan in large part because the legislation included subsidies for the affluent.

Mr. Obama would expand the drug program by eliminating the "doughnut hole," which suspends prescription coverage after the first $2,500 and then begins covering 95 percent of the costs after $5,700. Mr. Obama would allow Medicare to negotiate for cheaper drug prices, and he would allow seniors to import cheaper drugs from overseas.

Mr. McCain supports a commission to address Medicare's challenges.

Both campaigns have endorsed many similar Medicare cost-saving proposals, including computerizing health records, reducing fraudulent Medicare claims, increasing the use of generic drugs, more effectively managing chronic diseases and emphasizing preventive care. Mr. Obama would eliminate subsidies for private Medicare Advantage plans, while Mr. McCain would maintain Medicare Advantage.

On Medicaid, Mr. McCain would give states greater flexibility managing their costs. While giving states flexibility to reform their health policies, Mr. Obama would expand eligibility for Medicaid.

Neither candidate has offered nearly enough reforms and savings options to close the ever-widening fiscal gap caused by the large entitlement programs, said Brian Riedl, a budget analyst at the Heritage Foundation.

"Obama's proposal to eliminate Medicare's prescription-drug doughnut hole would dig Medicare's fiscal hole deeper," Mr. Riedl said. "Since Obama has ruled out increasing the retirement age and adjusting Social Security benefit levels, that leaves only tax hikes, and his tax proposal would not significantly close the long-term funding gap," Mr. Riedl said.

"McCain's proposals would likely do more to fix the long-term entitlement problems," Mr. Riedl said, largely because of his "openness to address Social Security, Medicare and Medicaid spending by bringing it in line with revenues."

Ms. MacGuineas of the bipartisan Committee for a Responsible Federal Budget said many experts agree that a compromise package of reforms would likely include several of the following: raising the retirement age, increasing Medicare premiums and reducing Social Security benefits for the affluent, adding a surtax on income and increasing health care efficiency - although she stressed that improvements in health care information technology will not be a magic bullet.

Addressing the larger problems posed by Medicare and Medicaid, Ms. MacGuineas said, "The bottom line is the country will have to come to terms with how much health care we want and how we intend to pay for it."