Medicare is the main policy challenge here, because rising health costs are the primary cause of unsustainable entitlement commitments. But Medicare reform -- the topic of intense, ideological debate -- is a political nonstarter. While Social Security is a relatively small contributor to future deficits, reforming it would be a large symbol, and a logical place to begin.
A member of the House Republican leadership recently told me that bipartisan Social Security reform could be written "on the back of a napkin" -- which is essentially what Obama's debt commission did. It set out a plan that would cut benefits for high-income earners, make the payroll tax more progressive and gradually raise the retirement age (with a hardship exception for those engaged in manual labor).
Obama's liberal base contends that the Social Security trust fund is not in immediate trouble. But this argument depends on an elaborate accounting trick. The trust fund is not filled with assets -- gold bullion and Apple stock. It is filled with debt issued by the government to itself. The surpluses of the trust fund are actually liabilities for the government as a whole. And these illusory surpluses are regularly used to subsidize the rest of the budget. The scheme begins to collapse in 2037, when promised benefits for Social Security recipients will suddenly drop by a quarter -- unless the system is reformed.
If Obama pursues Social Security reform, liberals are threatening a serious political revolt -- a genuine risk. But Obama's urgent political need is to polish his image among Independents on spending and debt. And this won't happen by being risk averse.
Social Security restructuring is not the obvious choice for Obama, but it is the smart one. It is achievable. It would invest Republican leaders in a constructive national enterprise. It would reassure global credit markets that America remains capable of governing itself. It would result in a more progressive, sustainable system. And it would make a dramatic, timely political statement: that the president is capable not only of expanding government but of reforming it.