1. Government Benefits: Americans have to decide that they will not get as much government support as they age. This seems overly simplified, but it is the people who will receive the money who have to decide to give it up. People in their 50s and 60s make up a powerful voter block. The people in this large demographic pool can almost certainly use their ballot power to block the election of politicians who support cuts in enti
tlements. The Baby Boomers and their younger demographic cohorts would have to decide there is some value in self-sacrifice. Under new programs, benefits might not begin until people are 70. People with assets above a certain level might get no Social Security at all. Whatever the formula, Americans who reach what was formerly known as retirement age sometime in the next 10 years will have to decide to live with less support from the government. These voters will go to the ballot box in 2012. They will either insist on what they have come to regard as their earned retirement or they will agree to give up some of those benefits for what could very well be a greater good, in order to prevent our borrowing costs from increasing.
2. Raise Taxes: The efforts of the Administration to raise taxes as part of the budget deal failed. Some economists think this was the worst part of the compromise. They argue that the federal government cannot cancel enough programs to create a balanced budget. Individuals and corporations will have to pay more in taxes. Ironically, the taxpayers must decide whether they will pay more taxes. The current Congress has already made its decision on the matter. It is up to Americans to choose politicians in the 2012 elections who favor moderate tax increases for individuals and U.S. companies. Taxes can be raised in thousands of ways. But, there must be a willingness to raise taxes in order to meet the demands of the S&P review.
3. Defense Budget: The Defense budget still supports large deployments of people and material overseas. This is not just in Afghanistan and Iraq. There are large concentrations of troops in Europe and Asia. America has commitments to NATO. Others exist because the federal government believes it needs to support strategic initiatives in places like Japan. Any real cut in the Pentagon budget means a decrease in these obligations.
4. Reduce Social Programs: The government currently supports a long list of “underprivileged” Americans that goes beyond classic entitlements. One of the most visible of these is the unemployed population. In order to preserve services to the traditional entitlement programs, it may be necessary to reduce or eliminate other social programs.
5. Limit Medical Care: Aging is a significant burden on medical costs from Medicare. Other nations like Canada and England have turned to what is essentially a rationing of medical treatment. Costs have been lowered in these countries through systems that mandate longer waiting times for treatment and a decrease in treatment options.
6. China: Taxes of U.S. companies and individuals need not be the only way for the government to raise revenue. There has been a groundswell in Congress to pressure China to alter the value of its currency to make trade between the two nations “fair.” Some economists believe cheap goods exported by China have caused a loss of manufacturing jobs in the U.S. The U.S. could place tariffs on more Chinese goods as a way to raise money and prevent “dumping” of products from the People’s Republic into the U.S.
7. Reduce Social Security: Older Americans could press Congress to curtail Social Security obligations to people who are 40 or less when they retire. That would make it easier for the government to handle entitlement costs in the future. It would also set up a battle about future deficits along age lines more than the party lines created by Democrats and Republicans. S&P wants gridlock to disappear from Washington now to prove the government has the will to improve the American financial situation. That won’t happen now. But it could in 2012, depending to a large extent on who wins the battle for entitlements.
There is one thing to gain from the S&P analysis. America’s situation is not hopeless unless Americans make it so.
Douglas A. McIntyre
