Experts divided on whether State of Union will tackle entitlements

She said that it would be wise for Obama to “go big, get specific” on a deficit-reduction plan, and that she would like him to back as a starting point the December deficit commission proposal, which featured a combination of tax increases, spending cuts and entitlement reform.

MacGuineas is working with a bipartisan group of senators led by Sens. Saxby Chambliss (R-Ga.) and Mark Warner (D-Va.) to introduce a bill based on the debt commission report.

Rudolph Penner, a fellow at the Urban Institute, predicted that Obama will be unwilling to go out on a limb and back reforming entitlements. He said Obama will focus on cutting discretionary spending instead.

Penner also said it will be interesting to see if House Budget Committee Chairman Paul Ryan (R-Wis.) will make a Social Security proposal if Obama doesn’t move first. Without an Obama overture, it is more likely Democrats will politicized the issue and simply denounce on any Ryan reform proposal, he said. After the debt commission report, then-House Speaker Nancy Pelosi (D-Calif.) denounced the plan as "simply unacceptable" in part for its cuts to entitlement benefits.

“I think it will take a real crisis, like the debt crisis in Greece, before we see a real reform effort,” Penner said.

Penner said Social Security should nonetheless be dealt with in the context of the deficit, even though technically it is funded by a separate trust fund and does not burden the national debt.

This is because the trust fund is not solvent in the long term, and fixes for it — such as payroll tax increases — reduce the ability to use such revenue to solve the federal debt, he said. The Social Security Trust Fund is projected to be solvent until 2037, at which point the dramatic rise in the number of baby boomer beneficiaries will mean a drastic cut in benefits unless a fix is found.

John Rother, an AARP executive vice president, said the speech will not “spring” entitlement reform on the public and will focus on defending health reform instead. He said Social Security reform can only be tackled in the second term of a reelected president and if there is divided government, because any solution has to have bipartisan support.

The effort has to be framed in terms of reassuring the public they will get benefits, he said. “The public will not stand for Social Security changes in order to reduce the deficit,” he said.

MacGuineas in her presentation said that she believes both parties now agree that the proposal to carve out personal accounts from Social Security is dead on arrival. Instead, Congress could come to embrace add-on accounts for people to bolster their retirement savings.

She personally favors a new mandate to force younger Americans to save more, but acknowledged that such an idea will be unpopular given the uproar the individual mandate to buy health insurance has faced in the debate over healthcare reform.

The debate will be on five points, she said — whether to raise the retirement age, reduce benefits for higher income earners, change the way inflation is calculated when it comes to raising benefits, whether to increase revenue from payroll taxes, and whether and how to provide minimum benefits for the poorest and most vulnerable.