"Running on Empty" by Peter G. Peterson

How does Kerry plan to tackle the projected deficits in Social Security and Medicare? One is hard-pressed to determine his policies on these programs. Neither is mentioned on the "Issues" page of his Web site, and digging a little further reveals few details (Kerry's "Four-Step Plan to Restore Medicare" consists of such bromides as "Kerry will strengthen drug coverage for those who have it -- not make it worse.") During his years in the Senate, and in the campaign, Kerry has repeatedly pledged to "secure" Social Security and Medicare, though he's offered few ideas about what his plan would look like. He has made clear, however, that he sees little need to overhaul the nation's entitlements -- like many other Democrats, Kerry seems to believe that future crises can be avoided by instituting a few modest changes.

In January in a primary debate held in Iowa, Kerry declared: "We did protect Social Security in the United States Senate, and Social Security is safe and sound well into the next two decades or more. With very minor changes, with a strong economy, the next generation will have Social Security. I will never privatize Social Security. I will never try to extend the retirement age for Social Security. And I will not cut any benefits for Social Security."

The idea that Social Security is "safe and sound" for the next couple of decades and is in pretty good shape for even "the next generation" is a central pillar of Democratic establishment thought. There is a kernel of truth to it. According to the latest data from the trustees who oversee the Social Security trust fund, the 75-year "actuarial" deficit in Social Security is $3.7 trillion, meaning that the program can be put into balance if the government begins taxing workers an extra 1.9 percent. (A recent report from the Congressional Budget Office puts the required tax increase at just 1 percent). Raising taxes by an extra 1 or 2 percent might be painful, but we can handle that, Democrats argue, especially if the payoff will be a sound Social Security system.

But looking at Social Security in a vacuum is, Peterson argues, not especially helpful when considering the long-term balance sheet of the nation. For one thing, seniors require more than just retirement income. They also need medical care, a whole lot of medical care. And due to generally rising health industry costs, the Medicare program is in much worse shape than Social Security, with a 75-year actuarial deficit of more than $15 trillion, the funding of which would require significant payroll tax increases.

Then, to make things really bleak, try considering time periods beyond 75 years (because our children's children will also be entitled to the entitlements). Over what accountants call an "infinite time horizon," the United States faces $45 trillion in "unfunded liabilities," according to a projection by economists at the American Enterprise Institute. The International Monetary Fund puts that number at $47 trillion. The Brookings Institution has it at $60 trillion. The trustees for Social Security have it at more than $72 trillion. Needless to say, it is highly unlikely that these spectacular shortfalls can be fixed by the sort of minor changes John Kerry favors. "Closing this gap would require massive adjustments in either tax or spending programs," the IMF has said. The agency added: "The longer-term fiscal deficit is also associated with a severe intergenerational balance" -- meaning, as Peterson translates it, "This approaching train wreck is a clear and present danger to our kids."

Last December, President Bush signed the Medicare Prescription Drug, Improvement and Modernization Act, which provides, according to the lawmakers who support it, much-needed prescription drug benefits to needy seniors who rely on the government for healthcare. Seniors had long been pressing for such an expansion in Medicare, and the legislation had been a main policy goal of Democrats; in persuading (just barely) members of his own party to go along with a drug plan, Bush was widely considered to have scored a major political victory, possibly winning over many seniors to the Republican Party in November. The bill was, Peterson notes, a huge shift for the GOP, which has traditionally resisted expanding entitlement programs. This was the compassionate side of Bush's conservatism -- yes, he was a Republican, but he was nevertheless willing to call for what Peterson deems "the largest legislated entitlement expansion since the heyday of the Great Society."

Next Page: Can we really afford to provide healthcare and prescription drugs for all seniors?

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