What’s Next for the U.S.?
Fiscal crises must be fixed the hard way
The recent U.S. credit downgrade has left many people wondering if and how the U.S. will climb out of its severe debt troubles.
Jack Mintz examines some of the possible scenarios in his latest Financial Post column.
He finds that given the political jostling between Democrats and Republicans, the U.S. is likely to see its deficits continue, with net debt becoming as large as its GDP, and inflation rising to 6 or 7% until the debt burden is stabilized.
Alternatively, Americans can decide to enact major fiscal policy reforms, Mintz argues. These measures would mean slow growth for the first few years but long-term gains for the economy.
Among the policy prescriptions Mintz outlines are reducing spending on social security and health programs; removing preferences like mortgage interest deductibility; lowering the corporate tax rate from 39% to 25%; and the adoption of a value-added tax to replace personal tax revenues.