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How Will the Election Affect the Deficit, Your Taxes and Social Security?

Several issues face the divided government

What the election means for you

— Obama: Carsten Koall/Getty Images; sky: Tony Sweet/Getty Images; Capitol: Doug Armand/Getty Images

En español |Washington's new divided government faces the tall order of reining in spending while creating jobs. Republicans and Tea Party activists, on one side of the divide, and President Obama and his traumatized Democrats on the other now confront a fraught political environment. The next two years pose high-stakes choices. How will the politicians respond to voter demands? Will they work across party lines or will they hunker down for a bruising 2012 campaign?

The showdown will occur amid daunting challenges — a brutal economy with one of every 10 Americans out of work, soaring state and federal budget deficits, two expensive wars and an outpouring of budget-cutting proposals produced by three deficit commissions.

Many of the issues on the table are critical to older Americans — the deficit, jobs, taxes, health care, Medicare and Social Security. How those issues are addressed will be determined largely by leaders of two increasingly polarized parties.

The election moves John Boehner of Ohio into the House speaker's chair, where he will have to integrate into a caucus of traditional Republicans some 80 newcomers who ran promising to upend the political world — and fast. "It's pretty clear the American people want a smaller, less costly and more accountable government," said Boehner.

By any measure, Obama and his Democrats took what he called a "shellacking" on Election Day. Democrats have not suffered such a setback in more than 70 years. As the Tea Party pushes congressional Republicans to the right, the election wipeout of moderate Blue Dog Democrats will push congressional Democrats further to the left, complicating prospects for compromise or collaboration.

Yet that is the course Obama charted after the election. The American people want Washington to "mix and match ideas, figure out those areas where we can agree on, move forward on those, disagree without being disagreeable," he said.

The partisan environment makes that very complicated. "There's a meanness here now. They don't even talk to each other," said Stephen Hess, senior fellow at the Brookings Institution.

"There doesn't seem to be much support for the middle course," said John Rother, AARP executive vice president. Still, he said, he is optimistic Obama and the Republicans will want to reach across the aisle. Republicans have the responsibility of governing now that they have the House majority. "I think the public would have a negative reaction if it were just a consistent 'no' message," Rother said.

Here are several critical issues facing the divided government:

The deficit and jobs. Voters said their major concerns were the $1.3 trillion budget deficit (along with the cumulative $13.7 trillion national debt) and jobs. Deficit panels, including one created by the president, are offering lawmakers an array of options.

The president's deficit commission, led by former senator Alan Simpson and former White House chief of staff Erskine Bowles, pulled no punches with its proposals: Cut defense spending by $100 billion, gradually raise the Social Security full retirement age from 67 to 69, raise gasoline taxes 15 cents, lower the corporate tax rate to 26 percent, limit deductions for home mortgage interest, cut farm subsidies and trim the federal workforce by 10 percent.

That's a tall order. "We have harpooned every whale in the ocean and some of the minnows," Simpson said. Reaction from politicians and special-interest groups, including AARP, was almost universally critical.

Eugene Steuerle, a fellow at the Urban Institute and former Treasury official, said both parties have for years spent more than the country takes in. But now voters are forcing the issue. Next year, he said, the government will spend about $30,000 per household and take in about $20,000 in taxes. "No matter what they do, it's going to be painful politically," Steuerle said. "The political dilemma is telling the middle class some of the things they've been promised in low taxes and high benefits cannot be sustained."

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