Arguably the biggest budgetary challenge facing the next president is the Social Security and Medicare programs. With the first baby boomer already receiving a Social Security check, and the soaring cost of medical care, Medicare and Social Security are ticking fiscal time bombs. The 600 words here don’t begin to cover the importance of these issues, but that’s still more air time than either major party candidate has given these critical issues.

The challenges are daunting. The Medicare trust fund is predicted to shift from annual surpluses to deficits this year and be completely exhausted by 2019. Estimates for the Social Security trust fund follow the same pattern, starting to spend more than it takes in by 2017 and being completely exhausted by 2041.

Since then-Speaker of the House Tip O’Neill and President Reagan brokered a compromise to maintain solvency of Social Security in the 1980s, there has been a lot of talk but little constructive action. President Clinton proposed to “save Social Security first” in the heady but brief era of budget surpluses, but nothing was done. Vice President Gore talked about the “lock box” during the 2000 campaign. The current Oval Office occupant attempted to shift the system into privately managed accounts, which did little more than polarize the debate.

The next president needs to fundamentally re-examine Social Security. Considering we control the inputs (payroll taxes) and outputs (age of eligibility and benefits) — if you have the political will to act, several adjustments (pdf) could extend solvency. Sen. Obama has mentioned one adjustment – increasing the amount of income (currently up to the first $102,000) that is subject to the payroll tax that funds the Social Security trust fund. But that does little to deal with long-term underlying fiscal problems.

Unfortunately Medicare is in more dire straits than Social Security. It goes bust sooner than Social Security and we only control the inputs (payroll taxes and transfers from general revenue) whereas the costs of health care and the aging population drive the costs. And recent changes like the addition of the prescription drug benefit simply added more cost without any substantive reform or adjustment. In fact, the prescription drug benefit is not even means tested, so Warren Buffet gets the same cost breaks that a grandmother in Middle America is getting.

Since a good portion of Medicare is funded out of general tax revenue (like the prescription drug benefit), the rising cost of Medicare and the aging population is even more overwhelming. Annual Medicare expenditures equaled roughly 3.2 percent of America’s gross domestic product (GDP) in 2007. That figure is supposed to more than double by 2035.

Simple proposals like relying on technology or reforming payment systems, as Sen. McCain has proposed, or reducing waste in the system, as Sen. Obama has proposed, are fine small steps. But they are rearranging the deck chairs on the Titanic. Both candidates have additional proposals, but nothing that really lays out a vision for fundamental change.

Medicare and Social Security must be right at the top of the next president’s agenda. The impending demographic changes of the baby boom retirement, the increasing cost of Medicare and the looming fiscal insolvency of both programs have become too large to sweep under the rug.

This is the first in an occasional series that will highlight some of the major budgetary challenges facing the next president