Lessons from Canada, not Answers
http://www.reuters.com/article/2011/08/08/us-crisis-canada-idUSTRE7746ZD20110808
Canada lost it's AAA rating way back in 1993. It was a difficult time economically. Our foreign debts were 45% of our GDP at the time. It cost $1.60CDN to buy $1USD, the peso of the north. Today USA's foreign debts are 100% of their GDP and it costs $0.95CDN to buy $1USD.
The writing was on the wall years before that. In 1991 Prime Minister Mulroney introduced the Goods & Services Tax (GST), a 7% tax on all purchases with few exceptions (groceries and books being the main two exempted goods).
It was never a popular tax. But a Canadian Prime Minister is much more powerful then an American President as a PM has the power to "whip" his party and force ever member to vote for (or against) a bill, ensuring it's passage into law. (The point of having political parties is to be politically aligned) But like I said it was never a popular tax and in 1993 the Tories lost the Federal Election in the biggest political defeat in history to Chretien's Liberal Party. Chretien won on a promise to scrap the GStax.
The GST was never scrapped as promised. It was much needed revenue and awesome revenue at that. But higher revenue alone won't get you out of debt. Of all the countries facing economic crisis today, only USA has relatively low taxes. Countries need to get a handle on spending as well.
Mulrony also sought to increase revenue by increasing trade, bringing money into the country from afar. With US President Reagen, they signed the Free Trade Agreement, to be introduced slowly removing tarrifs on international trade which were seen as a barrier rather then a protection.
Our then finance-minister Paul Martin eventually became a strong advocate for lowering the boom on Canadian deficit and debt "come hell or high water" and was supported by both sides of the House of Commons. Deep cuts averaging 20% severly effected Unemployment Insurance, Military and Provincial Transfer Payments.
And when the Provinces didn't have the cash flow they were used to, it trickled down to the provincial services. Provinces either cut services, raised taxes or there was a combonation of both. Some even sold off assets and had services privatized. Education, welfare and healthcare saw some of the worst cuts.
Health Care was always the sacred cow. While fiddled with to lessen the costs, it was largely kept intact. Governments knew Canadians would not accept less healthcare delivery. Some have argued in favour of opening it up to private enterprise for competition. Canadians always polled against any such measures that would "Americanize" our hospitals.
These initiatives took almost a decade to finally see full benefit. It was 1998 when Canadian government presented the first balanced budget, just 3weeks after Clinton introduced his balanced budget. Canada had surpluses for 7 straight years beginning with 1997/98 $3.8B, 1998/99 $3.1B, 1999/00 $12.7B, 2000/01 $18.1B, 2001/02 $8.9B, 2002/03 $7B, 2003/04 $9.1B
Part of the reason for not keeping the trend of surplus budget can certainly be attributed to 9/11. We entered Afghanisan, reinvested in our own military (that had wrong camoflage for Afghanistan) upgraded national security in compliance with American demands (new passports, border guards, etc)
Some of the reason for running a deficet in last 7years is just a lack of political will to have surpluses anymore. There`s a valid criticism that a surplus indicates that either taxes are too high or spending is too low. Like all socialized democracies we like our social programs to be well funded. And that dreaded GST mentioned aboved has been lowered to 5%
I doubt USA will slash military spending anywhere close to what it could. Too many hands have too much political power/influence keeping it afloat. Nor will USA raise taxes to anywthing close to levels seen in Canada, Europe or elsewhere. I don't thionk the problem in USA is a lack of political will to fix their economy. The problem as I see it is the system itself that doesn't allow leadership to actually steer the course of actions to be taken.