Paulson to press for entitlement reforms

Paulson to seek entitlement reform

August 02, 2006|By MCCLATCHY-TRIBUNE

NEW YORK -- Delivering his first address as treasury secretary, former investment banker Henry M. Paulson Jr. pledged yesterday to seek a bipartisan compromise with Congress to shore up federal benefit programs such as Social Security and Medicare, whose rising costs threaten the nation's long-term financial health.

The odds of success in that quest are quite low. President Bush devoted much of the first year of his second term seeking to partially privatize Social Security and got nowhere.

If Democrats capture either house of Congress in November's elections, they'll be even less likely to compromise with Bush on social policy. And even if Republicans triumph in the midterm elections, the president's lame-duck status will make him politically weaker with each passing month.

Still, Paulson vowed to try.

Speaking at Columbia University in New York, he made restructuring federal entitlement programs the centerpiece of an address that he penned himself to outline his economic vision for the Bush administration's remaining 29 months and 20 days.

"The biggest economic issue facing our country is the growth in spending on the major entitlement programs," Paulson said, repeatedly stressing the need to rein them in.

Once baby boomers - born between 1946 and 1964 - begin retiring in 2008, federal finances for retirement and health care will face increasing strains. Absent phased-in changes, lawmakers eventually may be forced to choose among steep tax increases, deep spending cuts or an unpleasant mix of both.

"The entitlement challenge is difficult, but it is fixable," Paulson said. "And given our expanding economy we can approach the issue from a position of strength."

Until recently, Paulson was the powerful chief executive officer of Wall Street behemoth Goldman Sachs & Co. Many colleagues wondered why he'd take a job in Washington for a lame-duck president facing a Congress with no stomach for overhauling Social Security, Medicare or Medicaid.

Paulson alluded to that yesterday, saying he abides by a philosophy that "when a problem needs fixing you should run toward it, not away from it. That's one of the reasons I came to Washington."

Force of personality is what's expected to distinguish Paulson - known by his nickname, Hank - from his predecessors John W. Snow and Paul H. O'Neill. Both were accomplished corporate executives but lacked pull in Wall Street financial circles.

Paulson thinks his credibility on Wall Street can help push a bitterly divided Congress to tackle issues that, left to fester, could drive foreign and domestic investors to abandon Treasury bonds, forcing the Treasury to offer higher interest rates that could choke the economy.

"Time is of the essence in dealing with these issues," said Richard Berner, the chief U.S. economist for banking giant Morgan Stanley. "Mr. Paulson clearly has a lot of credibility in financial markets. That's one of the things he brings to the table ... he has the opportunity to use that credibility in getting things done."

An aide to Paulson acknowledged that it's not clear that Bush is prepared to expend political capital again on trying to revamp Social Security.

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