The budget deficit of the U.S. is as scary high as $1,1 trillion or 7% of GDP (Sahadi 2012) and is obviously bringing the country in the even deeper debts. It is even prognosed that America might hit its "debt ceiling" again in the first quarter of 2013. It is therefore no need to state the great concern of the issue by the government and the public. The strict fiscal measures already in action are prognosed to become drastic in the coming year with the terms of the Budget Control Act of 2011 going into effect (Kenny 2012). The consequences of the severe spending cuts and tax raises are said to become dramatic for the state economy unless the projected legislation is changed. The probable economic contraction (the recession actually) is now often called the "Ficsal Cliff" by many economists.
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The obvious trade-off arises: the aggravating deficit providing better economic growth, supposing cancelation of the planned measures, or tough fiscal policy ensuring deficit reduction (in half) but at the cost of growth. Naturally, the best option lies in the middle: the fiscal measures are necessary, although they need to be reconsidered and aleviated, paying special attention to the vulnerable social classes.
The cornerstone of the dilemma currently lies in the choice between applying tax increases and cancelling previous tax cuts or reducing governmental spendings, namely reforming the Medicare.
There is an opinion that the proposed "means testing" in Medicare is a fair and reasonable measure, expressed namely by Noonan (the WSJ 2012) and Kaus (The DC 2012).They say that rise in eligibility age and premiums for the richest will tackle the deficit and debt problem. However if we look deeper into the issue many doubts arise. Some counter-arguments are presented by Joe Baker, Medicare Rights Center President.
First , those of annual income of $85 000 and higher are already paying higher premiums. The proposed programm would in addition set the fixed percentage of up to 25% of Medicare beneficiaries who will pay increased premiums. That is sure to harm the middle-incomers. The tax rise scheme, on the other hand, would affect those of higher than $200 000 individually and $250 000 per couple.
The means testing is moreover in fact not cutting the spendings - it just shifts them to the people, not the most affluent people actually, which might hurt their welfare severely.
Social factor is in addition not letting us to talk about equality of the tax and Medicare options. The ability and willingness to pay Medicare premiums depends on the health state, not the income of the person. It is therefore unreasonable to diversify the beneficiaries by income levels, while the treatment they need do not depend on it.
Moreover, there is a strong economic argument pointed out by Krugman. The proposed tax scheme would raise up to $1.6 trillion over the next decade while rough estimate of Medicare outcomes is of $113 billion savings.In addition, looking at the Marron's explanation, it's obvious that taxes considered concern mainly the richest: dividends, capital gains, ipper income tax raise.
So yes, the country is in debt, and that is why the unpopular tax measures should be taken, because they are the ones to clearly address the most affluent. This in turn corresponds with the pre-elections claims and current targets of cutting the deficit while protecting low- and middle class. The Medicare means testing is at the same time neither effective, nor fair, in fact shifting the burden to the middle class while claiming to touch only the high-incomers.
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