Deficit Dilemma: Will Washington Finally Tackle the Sacred Cows?

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By cutting big weapons programs and trimming things like health benefits (for higher earners and those who can be covered by a spouse's private-sector plan), Korb says, $100 billion in Pentagon spending could be saved annually "without hurting defense." It would come at a cost: an admission that the U.S. military can't do anything it likes, anywhere, at any time. Yes, that means we may not be prepared for every threat imaginable, however unlikely. "The part no one likes to discuss is, Where are we willing to take risks?" says Harrison.

Politicians, especially, don't like such talk. The House Republicans' "Pledge to America" campaign platform promised to exempt the military from any cost-cutting. Nor do members of Congress like to kill off weapons systems that provide good jobs back home. Yet some budget experts are hopeful that growing alarm about the deficit might be thawing a long-frozen debate. Liberal Democrats are finding common ground with conservative Republicans in tackling the Pentagon budget, as Massachusetts Democrat Barney Frank and Texas Republican Ron Paul did when they commissioned a report on finding cuts. "Taking defense spending off the table is indefensible," Oklahoma Senator Tom Coburn, one of the Senate's most conservative members, wrote recently. "We need to protect our nation, not the Pentagon's sacred cows."

II. Insecurity About Social Security
Nothing swings a bigger wrecking ball through the budgetary future than entitlement programs such as Medicare and Social Security. Like all other major industrialized nations (including France, Britain and Japan), the U.S. is grappling with the looming costs of funding a retirement system for a population living longer than was expected when the programs were created.

Medicare is actually the fastest-growing budget buster — and taming its costs was one goal of Obama's health care reform plan. But no one's sure whether those savings will materialize, which makes shoring up Social Security all the more important. "It's not the biggest problem, but it probably represents the biggest opportunity," says Walker. "We've got to get some points on the board, and Social Security represents our best chance to do that."

Social Security isn't a fiscal black hole — yet. But it soon will be. Retiring baby boomers who insist on living longer are pushing the $700 billion program into the red. By 2015 the program will spend more on benefits than it brings in through payroll taxes, and by 2037 it will require benefit cuts of 22% to stay solvent.

Democrats adore Social Security. It's the kind of program their party exists to defend. And their resolve is stiffened by the degree to which Americans depend on the program: nearly two-thirds of U.S. retirees now count on Social Security for more than half of their income, and one-sixth rely on it entirely.

But many Republicans don't like making workers and employers cough up for a Big Government program. They'd prefer to downsize it and let people put more money toward personal investments. The program's critics have learned, though, to be careful about what they say. Most of the 53 million Americans who collect Social Security are senior citizens, after all, and seniors happen to be the most reliable voters. (The rest are disabled or survivors of deceased recipients.) Hence the old cliché about Social Security as the "third rail" of American politics — touch it and you're electrocuted.

Much as Democrats haven't dared contest Pentagon spending, then, the GOP has unhappily tolerated the growth of Social Security benefits for fear of political retribution. (When George W. Bush sought to partially privatize the program in 2005, he couldn't persuade an otherwise loyal GOP Congress to take up his plan.) Even leading Democrats now admit that something has to change. The debate about how to make the change has led to a classic Washington argument about taxes vs. spending.

On the spending side, most reform proposals would rein in the annual cost-of-living growth of Social Security benefits — which now rises faster than inflation — and very gradually raise the retirement age by a couple of years. (Simpson and Bowles suggest a retirement age of 69 by 2075; currently, Americans born before 1955 can retire at 66.) If people are living longer, the thinking goes, they should work longer.

Here's where Democrats cry foul. Wealthy Americans may be living longer and enjoying more affluence in their old age than ever, but poorer ones are lagging behind. Low-income women have actually seen a slight decline in life span. "So you've got some janitor who has to work longer because lawyers or Wall Street tycoons are living longer?" asks Democratic Representative Jan Schakowsky of Illinois, a fiscal-commission member. (The Bowles-Simpson proposal includes a hardship exemption that would allow some workers to retire prematurely with full benefits.) Many Democrats see no need for benefit cuts at all, one reason House Speaker Nancy Pelosi declared an early-November draft plan from Bowles and Simpson "unacceptable."

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