Bush eyes entitlement, tax reforms in 2007

The Bush administration is weighing plans to start negotiations on entitlement and tax reform after the midterm elections, White House Office of Management and Budget Director Rob Portman indicated yesterday.

During a speech outlining the Office of Management and Budget’s (OMB) midsession review of the fiscal 2006 budget, Portman hinted that the administration’s efforts on the two controversial areas could be combined next year.

The administration reported yesterday that tax revenues were rising faster than previously projected and that the budget deficit for this fiscal year would be smaller than predicted.

Portman praised the administration’s tax and spending policies for spurring the economic growth that led to the increased revenue but cautioned about neglecting the massive future liabilities of Social Security, Medicare and Medicaid.

“That is not a problem that is being resolved by the good news that I’m reporting today,” he said.

Portman said election politics kept congressional Democrats from negotiating seriously with the administration on entitlements and taxes but predicted that talks would begin in earnest next year. The need to address the encroachment of the alternative minimum tax (AMT) on middle-class workers could be the issue that spurs cooperation, he said.

The administration has proposed a revenue-neutral adjustment of the tax to exclude people on the lower end of the income scale. This proposal is “something that could be relevant as part of the overall discussion on entitlements,” Portman said.

“Many Democrats believe it would not be constructive for us to have that kind of participation between now and the election,” he said. “I’m hopeful that past these elections … we’ll be able to work on a bipartisan basis.”

Portman said Congress would return to entitlement reform because lawmakers in both parties recognize the need to act.

“I think it is increasingly apparent to members of Congress, and to their constituents, this is an issue we must tackle as we get closer and closer to the baby-boom retirement,” he said.

President Bush has not abandoned his proposal to create a bipartisan commission to study entitlement reform, Portman said. Bush floated the idea during this year’s State of the Union address, but it has gained little traction in Congress.

In remarks delivered yesterday, Bush highlighted the importance of addressing rising entitlement spending that threatens to subsume the federal budget within 30 years if left unchecked.

“In the long run, the biggest challenge to our nation’s economic health is the unsustainable growth in spending for entitlement programs,” Bush said. “To solve the problem, we need to cut entitlement spending.”

Key congressional Democrats quickly dismissed the administration’s notions about entitlement reform.

“I think they just revealed what their real plan is,” said Sen. Kent Conrad (N.D.), the ranking Democrat on the Budget Committee. “Their real plan is to shred Social Security and Medicare.”

While Conrad agreed that budget reforms would require dealing with spending and revenue, he said the administration would have to make the first move: “It’s going to first require an acknowledgment on their part that we’ve got a very, very serious problem because of their fiscal policies.”

House Budget Committee ranking member John Spratt (D-S.C.) said he doubts that the administration would let Congress consider a wide array of policy solutions.

“Any kind of budget settlement over the long run [has] got to be largely based here in the Congress, with the administration’s full-hearted participation,” Spratt said. Moreover, if those discussions are to lead to a consensus, “everything is on the table: entitlement spending as well as discretionary spending, tax cuts as well as tax increases,” he said.

Although the Deficit Reduction Act signed by the president in February reduced Medicare spending by $6 billion and Medicaid by $5 billion, the administration has not been able to sell Congress on more ambitious entitlement reforms.

Bush failed to move his plan to add private accounts to Social Security last year, and Congress has responded coolly to his proposal this year to trim Medicare spending by an additional $36 billion and Medicaid by $1 billion.

House Majority Leader John Boehner (R-Ohio) decried Democrats’ rejection of Republican proposals to slow the growth rate of entitlement spending.

“They talk about entitlement programs but consistently avoid making the tough decisions it will require to save those benefits for our children and grandchildren,” Boehner said.