January 30, 2006
Monday

WASHINGTON - President Bush has promised to talk about big things in his State of the Union address Tuesday, but talk may be all he can deliver in an election year when Republicans fear losing their 12-year grip on Congress and Democrats smell blood.

Five years of rapidly rising federal spending on everything from the Iraq war and Hurricane Katrina to big entitlement programs such as Medicare and Medicaid are driving Bush into an ever-shrinking corner of unpleasant choices.

"He's trapped himself," said Leon Panetta, head of the Panetta Institute in Monterey, Calif., and former chief of staff to President Bill Clinton, a Democrat.

Bush opened his second term last year with ambitious plans to overhaul Social Security, which failed spectacularly, and the tax code, which he quietly dropped.

This year the president plans to tinker around the edges of health care - widely acknowledged as the pre-eminent domestic challenge facing the nation - by expanding tax breaks for health savings accounts, computerizing medical records and allowing national pooling of health insurance.

Along with preserving his first-term tax cuts, all are small-bore projects to sustain his legacy of an "ownership society," which he said is one of the things "I would like to be remembered for."

Much of Bush's problem in crafting a domestic agenda can be traced to the Medicare prescription-drug benefit he pushed through Congress in 2003 against the wishes of conservatives. It is the largest entitlement expansion since Democratic President Lyndon Johnson created Medicare in 1963.

Taking effect now, the drug benefit is beset by glitches, angering seniors rather than winning their votes as Republicans had planned, adding $30 billion to the budget deficit this year and exceeding even the entire shortfall in Social Security in the future.

"President Bush has a major, major headache on prescription drugs that no prescription will probably address," said Marshall Wittmann, a senior fellow at the centrist Democratic Progressive Policy Institute. "This is a sleeper issue in the 2006 elections among senior citizens."

The budget bind Bush and the nation face is hard to overstate. The three big entitlement programs - Social Security, Medicare and Medicaid, the health-care program for the poor - will this year cost more than $1 trillion. Medicare spending alone will rise 17 percent, according to the nonpartisan Congressional Budget Office, largely because of the new drug benefit.

Interest on the federal debt is now the fastest-growing area of federal spending, reaching $217 billion this year, more than last year's cost for the Iraq war and Hurricane Katrina combined.

"The biggest economic danger of the next 50 years is the coming crisis in entitlement spending," said Brian Riedl, a senior budget analyst with the conservative Heritage Foundation. "The problem is the entire health-care system is in crisis. The entire U.S. health-care system needs to be overhauled. If not, it will literally bankrupt the federal government."

The problem Bush faces in cutting spending is "Where do you go?" said Panetta, who once headed the White House budget office and the House Budget Committee as a representative from Monterey.

"You can't continue to go to Medicaid and food stamps, programs that serve the poor, which is where they went in this last session of Congress. He doesn't want to cut defense, obviously. He doesn't want to raise taxes. So he has trapped himself as to just exactly where is he going to go in order to exercise any fiscal discipline."

The health-care proposals Bush is expected to announce Tuesday draw heavily from two former economic advisers, Glenn Hubbard of Columbia University and John Cogan at the Hoover Institution, who aim to make the dysfunctional U.S. health-care system work more like a market.

The White House sees rising health-care costs - which grow about 2.5 percent faster than the nation's income every year - as erasing workers' wage gains and robbing Bush of credit for a growing economy.

Hubbard said "enormous public anxiety over health care" is no longer confined to the uninsured or workers in small business, but reaches employees of large corporations. People are worried, he said, "that the cost of insurance and care is rising so rapidly that they don't know whether they will be able to afford it in the future."

Hubbard said the country is "at a fork in the road" where health-care will move either toward markets or more government control through such programs as Medicare, the health-care program for the elderly. Hubbard conceded that while Social Security remains a problem, Medicare is actually the "big Kahuna" of the nation's fiscal troubles.

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