For many years, America’s economy was regarded as the largest and leading economy of the world. However, today it is fairly clear that the America is facing economic problems, and there seem to be no savory solutions to address these problems. Since the Second World War, the economy of the United States itself has become the greatest challenge that the country is facing today. Not only factors from within the country, but even international factors have contributed to this problem.
Domestically, the financial crisis of 2008 cruelly brought the feebleness of the U.S. economy to the surface. Since the Great Depression and in comparison to the downturns from the past, the 2008 financial crisis is being dubbed as the worst financial crisis in the history of America, and recovering from it is providing to be rather difficult for the U.S. economy. Ever since, the economic growth is the country has been sluggish because consumers are no longer as confident as they were in the past.
These are several daunting financial issues that are contributing to this overall economic problem that has become America’s biggest challenge.
The National Debt: Out of the total annual GDP of the United States, 73% of it is federal government debt ("Us government taxes,"), and this too excludes debt that is owed to the government itself, such as the Social Security Trust Fund. As the Congressional Budget Office claims, in the next ten years it is likely that this debt with rise up to 93% (Barth & Li, 2012), especially with the extension of current spending and tax rates, and may even go into the danger zone in another five years after that. If the national debt of the country keeps increasing at this rate, there might come a time when it will no longer be supportable, and may have to be devalued considerably through inflation.
Taxes: Today, out of the total GDP of the country, 18% accounts for total federal taxes and it has been this way since the 1950s (Tyson & Linden, 2012). Moreover, 34% of the GDP accounts for total taxes from all sources, which is still quite high by historical standards. At the same time, taxes in America actually need to be raised to some extent without pushing them too high than they have already been in the past.
Social Security: Currently, Social Security payroll taxes contribute to a majority of the benefits that are paid. The Trust Fund is of no use to the youngest American workers of today because by the time they retire it will already be exhausted (Novack, 2012) By then, these retirees will only receive about 75% of the benefits from taxes that are currently promised to them (Goss, 2010). The only feasible solutions seem to be cutting the benefits, raising Social Security taxes, or paying for the growing gap between these two with revenue from other taxes. These formulas might close the gap, but it will still become necessary to spread the burden between the taxpayers.
Pension Funds: Almost every American is aware of the troubled status of many pension funds that ultimately are to go to public-sector employees. Currently, there is a short of hundreds of billions of dollars between the amount that should have and the amount that has actually been saved to pay for future benefits. In fact, even this figure is substantially understated, and the actual shortfall is perhaps over five times as big. The reason behind this is that the probable future investment returns of pension funds are being considerably overestimated (Walsh & Hakim , 2012). The compound annual return assumed by many funds is about 7% to 8%, but it truthfully it should actually be about 5% to 6%.
Defense: Back in the 1950s, out of the total GDP of the U.S., 10% accounted for military spending and prior to the September 11 attacks in 2000, this percentage had dropped down to 3.7%. Ever since then, this percentage has more than doubled, especially after the GDP had to be adjusted for inflation, and now, 5.5% of the GDP accounts for military spending ("Can the u.s.," 2011). Thus, military spending actually takes off a huge chunk from the Federal budget, therefore, the need to cut social programs or raise taxes can be lessened by trimming this military spending. However, there is no consensus in the U.S. to trim down the country’s defense mission, and without it, it would not be possible to consequentially cut down the defense budget.
Although above figures may seem debatable, however, three things become apparent from them. First, although America’s biggest challenge is the economy, however, its biggest challenges are not entirely financial, rather they include the lack of clear objective and the electorate is broadly supporting it. Second, the government does not seem to want to face these most fundamental problems because there are significant political incitements involved. Third, it is necessary to deal with these problems serious to prevent the economy of the country from sliding along until it can no longer support debt and other financial problems. Ultimately, no matter how much these financial issues are denied and evaded, it is obvious that they exist.
If the United States has to recuperate from these financial crisis and bring its economy back up, will have to start relying on its services industry. Ever since the 1970s, a progressive shift has occurred in the economy of the country from the production of goods to the provision of services. The U.S. natural resources may also serve as a tool that could save the economy of the country from drowning. Finally, the U.S. has a strong labor force that can also play a role. However, to truly overcome this immense challenge, the American government needs to introduce policies that will support economic growth in the country and will make American consumers confident once again.
References
Barth, J. R., & Li, T. (2012). Us debt and deficits: Time to reverse the trend. Retrieved from http://business.auburn.edu/~barthjr/publications/2012/Check/Publish Version/US Debt and Deficits_Time to Reverse the Trend.pdf
Can the u.s. cut defense spending?. (2011, Feb 18). Retrieved from http://blogs.cfr.org/geographics/2011/02/18/defense-spending/
Goss, S. C. (2010). The future financial status of the social security program. Social Security Bulletin, 70(3), Retrieved from http://www.ssa.gov/policy/docs/ssb/v70n3/v70n3p111.html
Novack, J. (2012, Apr 23). Will social security be there for your retirement?. Retrieved from http://www.forbes.com/sites/janetnovack/2012/04/23/will-social-security-be-there-for-your-retirement
Tyson, L., & Linden, G. (2012, Jan). The corporate r&d tax credit and u.s. innovation and competitiveness. Retrieved from http://www.americanprogress.org/issues/2012/01/pdf/corporate_r_and_d.pdf
Us government taxes and revenue since 1900. (n.d.). Retrieved from http://www.usgovernmentrevenue.com/revenue_history
Walsh, M. W., & Hakim , D. (2012, May 27). Public pensions faulted for bets on rosy returns. Retrieved from http://www.nytimes.com/2012/05/28/nyregion/fragile-calculus-in-plans-to-fix-pension-systems.html?pagewanted=all&_r=0
