Simmering domestic issues face next president

By Donna Smith

WASHINGTON (Reuters) - The next president will face long-simmering domestic problems that range from a weakening economy to ballooning health care costs and stubborn budget deficits.

The wars in Iraq and Afghanistan, which cost $11 billion a month, are among the policy challenges that will remain for whoever takes over the White House next January.

They are part of President George W. Bush's focus on national security issues that followed the September 11, 2001, attacks on the United States.

But an aging population will put growing pressure on Social Security and Medicare, as well as other parts of the federal budget, and pressing tax issues could mean the next president will arrive in the Oval Office with the inbox already full.

"It is an agenda waiting for the president, rather than an agenda the president gets to set," said Maya MacGuinness, president of the Committee for a Responsible Federal Budget, a bipartisan group that advocates fiscal discipline.

Sen. John McCain, the presumptive Republican nominee, supports extending Bush's tax cuts beyond their 2010 expiration. He wants to slash corporate tax rates and eliminate the alternative minimum tax, which is aimed at the wealthiest but threatens to ensnare millions of middle-class taxpayers.

Abolishing the tax would cost the federal Treasury about $1 trillion over a decade. Bush only backed temporary AMT relief, which helped mask long-term budget deficits.

Democratic presidential hopefuls Hillary Clinton and Barack Obama have called for tax breaks targeted to the middle class and both want to reform the AMT. They have also called for major health care reform aimed at extending coverage for the estimated 47 million uninsured Americans.

Clinton wants to provide mandatory health insurance for all Americans and require large employers to provide health insurance or help pay for it. Subsidies for the poor would be provided, along with small-business tax breaks.

Obama proposes creating a national public insurance plan that would allow all citizens to buy the affordable health care available to federal employees.

RISING DEBT

All that would have to be accomplished as the national debt rises and 77 million baby boomers start drawing Social Security retirement payments and Medicare health benefits.

The U.S. debt stood at about $5.6 trillion when Bush took office in January 2001, and is on pace to top $10 trillion by the time he leaves office in January 2009.

David Walker, the outgoing head of the Government Accountability Office, has repeatedly told Congress the federal budget is "on an imprudent and unsustainable path" with growing budget deficits that will be driven by the demands of an aging population and rising health care costs.

Both Social Security and Medicare face long-term financing shortfalls. Bush's proposal to create private investment accounts to augment Social Security failed in the face of stiff opposition from Democrats who said it would undermine the retirement program. Obama and Clinton have talked about plans to boost retirement savings, but the Democrats could put Social Security and Medicare financing on the back burner while they tackle health care.