I had the opportunity to participate in a panel discussion with the same title as this post this morning. It was sponsored by the Institute for Lifelong Education at Dartmouth (ILEAD). My charge was to discuss the domestic policy challenges facing the Bush administration in its second term. A brief summary of those challenges was published in the Dartmouth faculty and staff paper:
On issues apart from the War on Terror, a second administration for President George W. Bush will be entirely about fiscal policy. The president has gained little traction on new initiatives outside of the budget, like education, job training, and immigration reform. He will need to achieve three fiscal policy objectives.
First: make good on his promise to cut the budget deficit in half between 2004 and 2009. If he doesn't do this, regardless of the circumstances (e.g., the war and inflation), then he validates criticisms of fiscal recklessness that will stick to his party. This objective limits the extent to which he can make his tax cuts permanent.
Second: achieve a bipartisan reform of Social Security that restores the program to long-term solvency. This was a campaign issue in 2000, and the subject of a pre-9/11 commission, but it has not progressed significantly since.
Third: recognize that the unfunded obligations of Medicare are even larger than those for Social Security. He also has to pursue structural reforms of Medicare that reduce its future claims on general revenues.