When Standards and Poor's, one of three credit rating agencies that evaluate risk on a country-wide scale, downgraded the US to AA+ rating from the AAA rating it was the first time the US had seen such a downgrade since it first became a AAA nation in 1917. The fact that it happened on the heels of the contentious debt deal, that was hammered out mere hours before the US ran out of borrowing power, being passed begged the question of which side was more at fault. Prominent Democrats have called it the Tea Party Downgrade, while those on the right have called it the Obama Downgrade. Although the Tea Party seems to keep fiscal responsibility as a central theme, Obama steadfastly refuses to take the nation's finances seriously.
While Obama seemed obsessed with using the debt deal as an excuse to raise taxes, the rating agencies were concerned only with spending cuts. Moody's has said a downgrade was imminent unless the amount cut was 4 trillion over ten years. The actual spending cuts in the bill were 2.4 trillion over 10 years. The only real way to achieve those kinds of cuts is to touch the third rail of politics, entitlement reform. While Obama announced he was ready to talk about entitlements but then ducked and demagogued any discussion of reform, the day when the payroll taxes will not cover the checks going out is rapidly approaching. The dates are continually moved up as long as we stay in a recession where total revenue to the government falls as less people pay taxes and more receive benefits. Even assuming that 2.4 trillion will actually be cut from the budget is impossibly optimistic. The first two years of cuts is 20 billion and 50 billion. Future Congresses, of course, cannot be held to these larger back-loaded cuts just as the current Congress is not held to the previous Congresses decrees.
Obama also belies his unseriousness when it comes to fiscal issues by constantly referencing his own debt reduction plan which was never shown to members of Congress or introduced as legislation. Par for the course for a President who was not passed a budget in over 800 days. While Obama is busy overhauling healthcare, telling GM which types of cars it can build, attacking countries without even a nod to Congress, and passing stimulus he has no time for such petty yet constitutionally mandated chores such as budgets. When Obama was inaugurated some in the press echoed his sentiments about the smallness of our politics especially for a man destined to do such great things. The perception of his comments by some seemed to be that he was literally lowering himself to be the most powerful man in the world. Unfortunately the "great things" he has done have failed miserably and he seems less interested in the business of governing than the business of transforming.
The rhetoric rolled out of by the left was laughable at best, the principal talking point being that Reagan presided over a robust economy because he enacted the biggest tax hike in history. Although this a partially true, it illustrates a greater point. As Pat Buchanan, a White House aide, recalls "Reagan was persuaded to sign on to a bipartisan big deal to cut spending three dollars for every dollar he accepted in new taxes. And the Gipper forever believed he had been lied to, as he got three dollars in tax hikes for every dollar in spending cuts." One of the oldest sayings in Washington is tax increases always come on time, spending cuts never materialize. Even with the tax hike, the net effect of the Reagan Presidency was to cut the top marginal tax rate in half and spur private sector growth.
After the debt bill passed and the downgrade was announced, the left claimed we had been downgraded because government had to been slashed to the bone. The New York Times predictably reported that Republicans "want a vastly smaller government," called the dispute about raising the federal debt ceiling "an epic clash over the parties' divergent views on the size and role of the federal government." and added President Obama faces "a conservative movement seeking a wholesale redefinition of the proper role of government." Thanks to baseline budgeting, which builds in government growth to the budget every single year even the 2.5 trillion cut over ten years only reduces the estimated additional debt from 10 trillion to 7.5 trillion. Rest assured, we will still increase our debt by 50% over the next ten years assuming all the cuts materialize. Unfortunately both sides of the aisle have the same vision of government, just slightly different ETAs.
Although President Obama surely bears the most blame for his shameless disregard for this nation's finances, even the Tea Party-inspired Republicans only seem willing to hold out for a smaller increase in the growth of government. Actually shrinking government or acknowledging that the entitlement status quo is unsustainable seems too far outside the mainstream for any politician other than the Pauls (Ron and Rand) to seriously consider. Let us hope the downgrade is a warning that does not go unheeded.
A note to my readers: I did not intend to take the summer off but it seems to have happened anyway. I hope to resume my triweekly schedule. For those not following me on Facebook, you're missing out on daily updates usually a quote, link or video that pertains to current stories in the news. If you're not following me but would like to, please use the link and click the "like" button next to the page title. I hope everyone had a great summer.
Regards,
The Libertarin
