Rapture of a Surplus, Part 2

President Clinton's recent Social Security and Medicare proposals are welcome, if overdue. But reform depends on the answers to two questions: (1) How hard is he really willing to push; and (2) How much is he willing to compromise?

In both cases, Mr. Clinton's plan would do little to fix the problems underlying the country's two most important entitlement programs.

If administration projections are correct, the Clinton proposals' main effect will be to postpone bankruptcy, which for Medicare is currently estimated in 2015 and for Social Security in 2034.

Washington can do better.

On Social Security, the president has adroitly appropriated the Republican "lockbox" proposal. He now agrees to devote the Social Security surplus to paying down the government's public debt. The lockbox plan would pay the debt off by 2015.

But Clinton would still have the government invest some Social Security trust funds in the stock market. That's a bad idea. Instead, a portion of each worker's payroll tax should go into an account he or she owns and can invest within a set of guidelines. That avoids market-distorting side-effects from government investment.

On Medicare, the administration wants to add a costly new benefit at the same time it must strengthen the program's eroding fiscal foundations. It seems likely Congress will approve a prescription-drug benefit of some kind. The dispute will be how to fund it and who gets it - all Medicare participants (Clinton's plan) or only those with low incomes (as many Republicans prefer).

The Clinton plan would create more competition between managed-care plans offering Medicare coverage, but the program really needs competition between managed care, the traditional fee-for-service approach, and other plans to help contain costs.

In short, Congress should opt for Medicare reform that offers the most choice and the least amount of government intervention possible.