Ratings Agencies Want to See Bush Tax Cuts Lapse

July 26th, 2011 at 11:58 pm | 79 Comments |

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The suggestion that the US needs to cut $4 trillion in projected debt over the next ten years in order to avoid a downgrade in its debt rating, posed here in an S&P report, has gained significant traction among many on the right. Erick Erickson, when he’s not denying “absolution” to the falsely faithful in the GOP, has emphasized this cut of $4 trillion as crucial to avoid a downgrade.

However, digging into the S&P report reveals some details that might be more problematic for many seeming “deficit hawks.” Though this report does suggest that $4 trillion in cuts/increased revenue over the next ten years would be enough to keep an AAA rating, it also says that its baseline for savings assumes the expiration of the Bush tax cuts in 2012. Will many of these “deficit hawks” abandon those tax cuts in order to appease S&P and keep an AAA rating?

This report also makes an interesting—and perhaps unwarranted—logical jump:

Congress and the Administration might also settle for a smaller increase in the debt ceiling, or they might agree on a plan that, while avoiding a near-term default, might not, in our view, materially improve our base case expectation for the future path of the net general government debt-to-GDP ratio. U.S. political debate is currently more focused on the need for medium-term fiscal consolidation than it has been for a decade. Based on this, we believe that an inability to reach an agreement now could indicate that an agreement will not be reached for several more years. We view an inability to timely agree and credibly implement medium-term fiscal consolidation policy as inconsistent with a ‘AAA’ sovereign rating, given the expected government debt trajectory noted above.

Really? Right now, we have had a House filled with new members who have a radical antipathy to the sitting president, his party (which controls the Senate), and (Democratic) deficit spending. I would think now might be one of the times when a long-term agreement was least likely. Things could be radically different 2 years from now. If Obama wins reelection, the Republican majority in the House would likely be quite diminished, if not destroyed. Meanwhile, the Senate, a more consent-run institution, would likely have a narrow Democratic or Republican majority. Wouldn’t that situation be more likely to have a bipartisan agreement? Likewise, a Republican victory in November 2012 could very likely lead to Republicans controlling both houses of Congress and the presidency. Surely that scenario would also be likely to pass a long-term debt-decreasing strategy—or at least more likely than the present. S&P might be guilty here of setting a false deadline. This is not the first time S&P has made mistakes in its analysis.

Moreover, it’s worth noting that S&P does seem not overly concerned about the current amount of US debt as a percentage of GDP. After all, many countries (such as Germany and France) have debts that are greater fractions of their economies than the USA does by many estimates (S&P currently estimates that the US debt-to-GDP ratio is close to 75%). Moreover, US bonds constitute nearly 60% of AAA-traded government bonds. And interest rates on long-term government bonds are very low, indicating that investors feel quite safe buying US treasuries. Much of the market seems to believe that US debt is a safe investment.

What S&P is concerned about—and we should be concerned with—is the trajectory of debt as a percentage of GDP, which has shot upwards in recent years. One of the biggest drivers of our debt problems in the short term is the poor economy (Medicare is one of the biggest in the long term). And S&P warns that refusing to raise the debt ceiling could lead to a worsening of the economy and further degrade the US debt outlook. This S&P analysis suggests that raising the debt ceiling without $4 trillion in savings and the repeal of the Bush tax cuts might lead to a downgrade (nowhere does it say that it will downgrade US debt if cuts are less than $4 trillion), but refusing to raise the debt ceiling would very likely lead to a downgrade.

The miserable employment picture and resulting diminished tax revenues probably accounts for at least half (and perhaps much more) of the current deficit—over $700 billion dollars a year. Getting back to a fully functioning economy would shave trillions off the debt over the next decade. Anything that gets in the way of a real economic recovery would likely worsen, not resolve, our debt crisis.

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79 Comments so far ↓

  • American_Kidd

    It is very difficult to take the ratings agencies seriously, after all they gave the now “garbage” mortgage backed financial instruments triple “A” ratings…..

    • zephae

      Perhaps, but unfortunately it’s the people that DO take them seriously that matter this time around.

    • Houndentenor

      It’s a valid point, but irrelevant to this discussion. The ratings will change what interest the federal government has to pay to finance the debt and every point makes it that much harder to pay it off.

  • Scritor

    True, it’s hard to take ratings agencies seriously.

    But you have to remember that when people scream that America is becoming Greece, they aren’t taking themselves seriously. Places like Greece are forced into raising taxes and cutting spending. If you live in the advanced country that chronically rakes in among the lowest in taxes and you have a hobby horse about taxes, it’s time to take some riding lessons. People riot in the streets because of painful circumstances that affect them. Admitting that America is like Greece means you (unwillingly) concede that you are able to face down the hordes of strikers and street protesters of all ages who will scream you down for the harm you are visiting upon them. It comes with the territory.

    There is some evidence to support the claim that our economic performance is stratified: e.g., the top quartile might be happily living recession-free while the bottom quartile lives through a depression and the middle half just a recession.

    Now, if your idea of an austerity plan effectively targets those who are not well off for the majority of your spending-cuts-alone approach, you must not understand the concept of austerity and shared sacrifice. And you drastically underestimate the degree to which people will demonstrate if they stop receiving SS checks just because we artificially can’t be bothered to generate any more revenue by cancelling destructive tax credits or returning rich-person tax rates to the Clinton levels.

  • Scritor

    “Likewise, a Republican victory in November 2012 could very likely lead to Republicans controlling both houses of Congress and the presidency. Surely that scenario would also be likely to pass a long-term debt-decreasing strategy—or at least more likely than the present.”

    Mr. Bauer, I believe you are guilty of setting up a false universe. Where unicorns fly. A fully Republican Congress . . . where have we seen that in the past? And now that we have seen a Republican House on steroids and tumescent with shrunken power, what did they offer up? The Ryan budget, the peace offering of the Young Guns who portend ill for future Republican governance?

    It will be manifestly unpossible for the Republicans to balance the budget within a 100-year time window if they control government in 2012. Un. Possible. Even if Huntsman led them, we could not balance the budget. Even if half of them were really Democrats, we could not balance the budget. Period.

    Show me a way that Republicans can balance the budget. Even their current proposals can’t do it. At this point, an even-handed Beltway style presentation is in order. Could the Progressive Caucus’s budget get revenue positive within a decade? They say they can, and real, non-Heritage numbers back that up. Hint: if you increase taxes, it becomes much more easier to balance a budget that is structurally short on tax revenue.

    • Churl

      “…Republican House on steroids and tumescent with shrunken power….”

      Shrunken when tumescent? May I suggest an evening with a Really Good Friend, a class in anatomy, or at least perusal of a dictionary to help straighten out your similes?

      • arvan

        It’s actually a wonderfully descriptive phrase. You’ve just missed a key bit of context. The phrase is in reference to how they were in the Bush years. The Republican’s power has shrunk over the past two to four years. This makes them angry, so they’re puffing up their chests — becoming tumescent. I would have gone with turgid to describe them, for the added reference of the Dr. Strangelove character all too eagerly cheering on apocalypse, but the point is the same either way.

        • cporet

          Nice catch, Arvan. I do so love the English language, as Richard Burton said, “The greatest tool ever invented by man”.

  • SteveThompson

    Have you ever wondered how America’s tax levels compare to those of other nations? Here’s an examination of the tax levels of the OECD nations showing which are paying the highest levels of personal taxes:

    http://viableopposition.blogspot.com/2011/05/how-big-is-your-tax-wedge.html

    The United States, despite its massive and growing deficit, has among the lowest taxation level on earned income among all OECD nations and at a rate that is substantially less than most Eurozone nations. Unfortunately for all of us, governments tend to use increased revenue as a reason to spend even more.

    • JimBob

      In the 1950s when the top rate on the wealthiest Americans was 91 percent revenue collected was around 18 percent of GDP. It’s not lack of taxes, it’s out of control spending.

      • zephae

        Yes, because the only tax in America is the federal income tax. Contrary to your belief Jimbo, America does not exist in an alternate reality where taxes have no impact on revenue.

        • JimBob

          Methinks you need to study up on the subject. We have a national gas tax to pay for federal highway construction.

          If Washington wants more money then it is going to have to go after the Middle class in a big way. Right now the top 5 percent pays 60 percent of the revenue collected by Washington. The bottom 50 percent pay less than 2 percent.

        • tommybones

          You realize that the top 20% of the wealth pyramid in the United States control over 90% of the nation’s wealth? 80% of the country, the poor and middle class, control less than 10% of the nation’s wealth.

          Oh, and I need to point out that there is more to the tax structure in this country than simply income taxes. Most taxes are highly regressive, but conservative propaganda houses like Heritage like to point to the one progressive tax with the most impact, the Federal Income Tax, and call it a day.

          Check out this chart and tell me the wealthy are paying too much nowadays and that it’s a drain on the economy.

          http://www.ritholtz.com/blog/2011/04/us-tax-rates-1916-2010/

          You can’t.

        • Steve D

          TommyBones: “You realize that the top 20% of the wealth pyramid in the United States control over 90% of the nation’s wealth? 80% of the country, the poor and middle class, control less than 10% of the nation’s wealth.”

          Wealth isn’t income and (prepare to learn a new word) not always fungible. That means convertible into other forms. So let’s just grab that 90% of the wealth, most of which is securities. Now what? Sell it? To whom? Every day bits of it get sold, maybe a few per cent. Try to sell all of it and, well, Google 1929. The people who control airlines have much of their wealth in aircraft and hangars. The people who control Royal Caribbean and Celebrity have it locked up in ships. What are you going to do, give every poor person an airline seat and overhead bin?

          Only a handful of people control the National Parks, Interstate Highway System, National Science Foundation and Hoover Dam, too.

          I was out of the country in the Allende years in Chile and got a pretty thorough, non-US picture of what was going on (mostly CBC and BBC). Chile’s Marxists were utterly baffled when factories morphed into vacant buildings full of idle machinery. “I don’t understand it – we’ve taken over the means of production. Why aren’t the masses getting wealthy?” Toward the end, I could practically see them frantically yanking out the sofa cushions, looking for loose change.

  • planetirving

    We are in still an economic quagmire. Real wages are down, employment and under employment dragging down consumers, lower tax revenues, and the mood of the country sour. Was this really the time to decide to rock the proverbial economic ship even more and decide to open Pandora’s Box. To quote from a TV “Can, open, worms, everywhere!”

  • iveyguy

    You really have a choice. You can be a deficit hawk and for you, this is the single most important issue. The goal is to reduce the deficit at all costs. Everything else is secondary. If this means that taxed must be increased, so be it.

    In the alternative, you can be a tax hawk and for you, this is the single most important issue. The goal is to reduce taxes at all costs. Everything else is secondary. If this means that the deficit must be increased, so be it.

    If you are 50+ then your own personal self interest leans significantly more towards being a tax hawk as these are your peak earning years. If the paying of the piper can be put off for ten (good), or fifteen (even better) more years then someone else will be picking up most, or all of the tab.

    If you are like me in your thirties, then your own personal self interest might lean significantly more towards being a deficit hawk as your income is [hopefully] going to be increasing steadily for the next few decades and you are a long ways away from your peak earning years. You are anxious not to be the one left holding the bag when the music stops.

    As a Canadian –and I am still pinching myself in disbelieve that I am able to creditably say this– we are in a much better decifit situation vis-a-vis the US. We went through our own round of painful tax increases and spending cuts two decades ago and now our fiscal house is [mostly] in order.

    We were in a surplus for a decade prior to the downturn and will likely be back in that same situation in three to four years. Then we can once again get serious about both paying down the national debt AND reducing taxes.

    I personally believe however that unless and until the deficit is eliminated, that taxes should not be lowered, perhaps even moderately increased in the near term. I also have a strong preferance when we are in a balanced budget situation to holding the line on taxes (and spending of course) and using the surplus to pay down the debt.

    Now, ask me again in fifteen to twenty years when I am the peak of my earning and I am quite sure that I will abandon the deficit/debt drum and start banging on for all I am worth about lower taxes.

    • forgetn

      Yveyguy

      Classic mistake, talk about Canada, its like a red cape to America’s exceptionalism. Just don’t do it (even if everything you say is true)

  • Graychin

    Anyone who actually cares anything at all about deficits and debt realizes that the Bush tax cuts were irresponsible from the git-go, were one of the major causes (if not THE greatest cause) of the present crisis, and must be allowed to expire if we are ever to get our budget into reasonable shape again.

    Unfortunately, most Congressional Republicans don’t care anything about the deficit. They claim to, but they obviously do not. Most voted for the Bush tax cuts and for unfunded Medicare Part D, and never lifted a finger to pay for the wars in Iraq or Afghanistan. They would happily repeal Obamacare, which sensible observers realize will substantially reduce the deficit.

    NOW they claim to care about deficits, but it’s only a convenient pretext for dismantling programs like Medicare, Medicaid and Social Security – which they always hated for purely ideological reasons, never mind their overwhelming popularity with voters. And repealing Obamacare.

    “We’re broke. We can’t afford it.” Mostly because of the Bush tax cuts for the wealthy. How convenient!

    I’m sure that Congressional Republicans would gladly sacrifice our AAA rating in order to keep the Bush tax cuts in place. Lower tax rates for wealthiest Americans are their guiding star in all things.

    • jamesj

      Agreed.

      - The wars
      - The Bush tax cuts
      - Medicare Part D

      Those are a huge chunk of the problem. It is not a matter of opinion. It is a matter of cold, hard irrefutable fact.

    • JimBob

      The Bush tax cuts are not responsible for the current crisis. Bush and Obama spending are responsible.

      The National Debt Road Trip

      http://www.youtube.com/watch?v=P5yxFtTwDcc

      • Houndentenor

        No, it’s both. Bush increased spending and cut taxes. The results were predictable (and widely predicted). Contrast that to Clinton who raised taxes and cut spending (without a single Republican vote in 1993 and predictions that it would wreck the economy LOL).

        It’s not one or the other; it’s both.

        • JimBob

          No its not. Clinton’s tax hikes brought in less revenue because they slowed the economy. It wasn’t till the the GOP captured both houses of congress in the 94 midterms and stopped Hillary’s schemes did we see real growth in the economy. Clinton being the master politician threw the Pelosi wing of the party under the bus and worked with Gingrich to slow spending and sign welfare reform. The internet boom took off. Windows 95, Dell Computers, Steve Jobs was saved by Bill Gates and revenue flowed into the treasury.

          I give Clinton credit. He is a Capitalist and truly does believe in Free Markets. He’s even said good things about the Gold Standard.

          Whereas Obama sees the private sector as something to loot and redistribute wealth.

        • medinnus

          *yawn* Same old lies presented as assertions. You have ceased to be amusing, and now are merely pathetic. Next – ranting about the “Chicago Street Hustler Barry Hussien” and how he’s ripping off the Poor Rich Republicans to give to the Rich Poor Democrats?

          You really need to find a different nonsensical rant.

          Bush’s unfunded wars and Medicare D fucked the economy. Grow a pair and own it.

        • tommybones

          I wonder what it’s like to be completely brainwashed, like Jimbob? Up is down, black is white… and he believes it completely. The facts are so readily available and yet he still believes the OPPOSITE.

          How do you convince someone so utterly removed from reality??? I’m serious. How do you deal with a segment of the population who would believe the earth is flat, even after they were taken into a space shuttle and shown that the earth is indeed round?

    • Houndentenor

      I remember the debate quite well. Republicans said over and over that “deficits don’t matter.” I guess they meant that they don’t matter so long as a Republican is in the White House.

      • JimBob

        Methinks your memory is fading. Cheney said that in the 2000s. Republicans with Clinton reduced the deficit and slowed spending allowing revenues to surpass outlays.

      • JimBob

        medinnus, what am I lying about punk!! As I said earlier on this thread Bush and Obama spending are responsible. The debt increased 4.9 trillion during Bush’s 8 years in office. . But in the 2.5 years Hussein as been President the debt has increased 4.1 trillion.

        Pelosi and Obama went on the greatest spending binge in history.

        • tommybones

          Curious if Jimbob is:

          a) some greedy wealthy banker, or
          b) some mindless middle class lemming who is serving his overlords

        • JimBob

          Kid, I’m retired. Dismayed that young people voted for this Hustler in the White House. He is ruining their future. Me, I’m financially secure.

        • jenk

          Oh horseshit Jimbob!

          The ONLY reason the deficit that you are able to come up with that figure is because Obama ended Bush’s practice of keeping stuff like the wars off the books.

          Obama’s policies account for about $1.4 trillion of the deficit. Bush’s policies, especially the tax cuts (which were supposed to be gone by now anyway) account for over $5 trillion.

          We have a revenue problem. People are just too stupid or too beholden to Grover to admit it.

        • medinnus

          Your lies are well-documented by others here, BoehnerSwallower; I see no need to repeat what others have documented so well already. You have no integrity, no respect for your elected President, no arguments to make that aren’t picked apart by the rational in short order. Its a wonder you post here; humiliation must give you another Boehner.

          Oh, and as to being a ‘punk’ – is that all your pathetic vitriol can summon? Too bad, old man – I hope watching all your old-man prejudices get minimized into the dungheap of history really grows within you like a colon cancer. Gays get to marry. Black people don’t have to ride separate buses. You can’t burn non-Christians anymore, either. You can’t lynch minorities, and the minorities are going to out-populate your white bigoted ass within a decade or so – and I hope you’re alive to see it. I hope it drives you mad with impotent fury. Its what wastes of oxygen like you deserve; a hell of your own making.

  • jamesj

    “Moreover, it’s worth noting that S&P does seem not overly concerned about the current amount of US debt as a percentage of GDP… What S&P is concerned about—and we should be concerned with—is the trajectory of debt as a percentage of GDP, which has shot upwards in recent years… Getting back to a fully functioning economy would shave trillions off the debt over the next decade.”

    Bingo.

    Too bad Republicans in the House are moving in the opposite direction, seeking to clamp down hard on employment and growth rates with a drastic slice into current spending levels. They’ve introduced a lack of faith in US credit that did not exist previously and need not have even entered anyone’s mind. Their plan is the exact opposite of what most economists prescribe and the exact opposite of what most of GWB and BO’s economic advisers were proposing to them 4 years ago.

    Thank you American voters.

  • sinz54

    “it also says that its baseline for savings assumes the expiration of the Bush tax cuts in 2012. ”

    ALL of them?

    Then Obama won’t like that either.

    The Bush tax cuts cut taxes across the board.
    In 2008, Obama campaigned on a firm pledge NEVER to raise taxes on the middle class.

    Letting all the Bush tax cuts expire would represent breaking that pledge, comparable to Bush 41′s breaking his infamous “Read my lips” pledge.

    • jamesj

      Agreed, but perhaps Obama could end up following in the footsteps of Bush Sr., Reagan, and many other recent presidents who raised taxes when it was in the national interest despite their pledges to the contrary and despite lay opinion.

    • Solo4114

      By that point, he’d be in his second term and could thumb his nose at such pledges/promises. Moreover, he could do so legitimately based on the “facts on the ground.” He’s a pragmatist first. Perhaps a pragmatist guided by ideology, but not ruled by it.

    • zephae

      I don’t know that he won’t like it. It wouldn’t help him politically, but all he has to do is stall past the 2012 election.

    • Raskolnik

      ALL of them?

      Perhaps, although that might not prove necessary. Adjust capital gains to the same rate as income, keep the rates of the bottom 98% where they are now. It’s not $3.8 trillion off the bat, but it is a start, and it avoids increasing taxes on (what remains of) the middle class.

      The bottom line is that taxes are going up regardless of any pledge by Obama or Boehner or anyone else. There really isn’t any way around it.

      • JimBob

        That’s the answer, raise capital gains taxes. Hilarious. What would happen? Capital would flow out of the country making it harder and harder for the private sector to create wealth so new jobs can be created. I bet you work for the government.

        • tommybones

          Ugh. Demand creates jobs, nitwit. Not your Galtian overlords and their brilliance.

          In Jimbob’s world, jobs are created, magically, by a club of brilliant, wealthy Galtian Santas, who bestow the GIFT of jobs out of the kindness of their hearts.

        • tommybones

          I’ll try to dumb down an example of creating demand for you.

          A restaurant owner only hires enough workers to meet the demand. Let’s say he needs 10 workers to deal with his 100 customers per night. 10% of the population in his town are unemployed and cannot afford to shop at his restaurant­­­. Give them adequate unemployment benefits or a job and suddenly he sees a rise in customer base. He then has to hire another two workers to cover demand. He orders more food and supplies to cover the increased demand. The companies who provide food and supplies see increased demand also. They hire more people. More truck drivers are needed. Etc. These new hires now spend money in their own communitie­­­s, at the local supermarke­­t, movie theater, restaurant­­s, clothing stores. All of these businesses see an increase in demand and have to hire more people. Eventually the employment rate rises. That 10% unemployment number in that town drops. These newly employed people are now working in the private sector, due to the increased demand for products and services. The middle class emerges once again. The unemployme­­nt rate nationally is reduced dramatical­­ly. Tax receipts spike. The deficit drops.

          Lower unemployment and higher tax revenue lead to lower debt.

          Conversely­­, take that same restaurant­­. Now, take the 10% in the town who are unemployed and reduce their unemployme­­nt benefits or put forth austerity measures which force even more layoffs and pay cuts. That restaurant LOSES customers. The owner has to reduce his work force in response to this drop in demand for his product. Now he has 8 workers. That’s two less workers spending money in the town. Those other business in the town now see a drop in demand, also. So, THEY lay off employees, too. It becomes a death spiral.

          Absent demand, we need the government to spend money to stimulate the economy and start this positive domino effect.

          Get it? I can’t make it any simpler.

    • ram6968

      woop dee do….the bush tax cuts put a extra $1.27 in my check(would love to see what it did for the eich) ….so spare me the OMG stuff

  • Houndentenor

    Do you really think the Senate Democrats are going to go along with extending the Bush tax cuts next year? Kiss that tax cut goodbye.

    That said, the real way to raise taxes on the rich is not to increase the rates. We would have to cut some of the deductions.

    • greg_barton

      To let the cuts lapse you don’t have to “get by” anyone. If nothing is done they just lapse.

  • PracticalGirl

    Isn’t it time that we stop calling the Bush tax plan “cuts”? After all, Americans pay more in collective interest on the loans to keep them in place YOY than most would if their individual taxes reverted back to pre-Bush plan

    • Chris Balsz

      The money belongs to the people who create it, and leaving it in the private sector is not a “cost” to the government. You might as well presume the government owns 100% of GDP and wail about the cost of not confiscating it.

      • PracticalGirl

        In a vacuum, your rhetorical position stands.

        Unfortunately, the Bush tax plan (and sure- now it belongs to Obama, as well) wasn’t created in a vacuum. It was created within steeply contracting revenues and rising expenses. The Bush tax plan has ALWAYS relied upon borrowed money- a fiscally unsound practice- so how can you say that that money “belongs to the people”? Borrowed money necessarily means taking money that was never there to begin with.

        • Chris Balsz

          There’s no “context” to private property rights. It belongs to the people who earn it. Period.

          If, meanwhile, the federal government is spending more than it collects, then it can cut spending.

        • Banty

          “In a vacuum, your rhetorical position stands.”

          It doesn’t even stand in a vacuum, unless that vacuum is so vacuous, that money is made without using any infrastructure, relying on no education on the part of employees, while breathing polluted air, deftly avoiding badly packaged foods by said money maker’s own knowledge and precautions while the money maker is making said money, etc. etc.

        • Chris Balsz

          Why stop with mere money, Banty? “The State nourished your body. The State trained your mind. The State raised you to adulthood. Now you must serve the State.”

          BTW with the ridiculous extreme conditions you describe….the United States was the thrid largest industrial power in the world.

        • Banty

          Don’t be silly Chris. The POINT is that money is made, enabled by an infrastructure and stable environment both politically and physically. That combines with the efforts of the money makers to make the money. They owe back to maintain the infrastructure and other facets of our society that enabled the success of their efforts to begin with.

          I know that doesn’t accord with your philosophy. But it is the way it works in the real world.

          I used to be a Libertarian. A decade or so more (past my I-can-do-it-all overconfident twenties) of working in the real business world, fixed that.

      • Raskolnik

        @Chris:

        Precisely. That is exactly why I favor a VAT. The idea with an income tax is that the government decides how much of your wealth it is going to allow you to keep. The idea with a VAT is that you pay more for consuming more.

        We should (and can) hold the line on the Bush tax cuts. As FF contributor Pavelyev has noted, history is irrelevant; what matters is what the marginal income tax rates are right now. I am less sympathetic for the capital gains rate. Bring the capital gains rate back in line with income; eliminate loopholes, corporate welfare, subsidies; impose a small national VAT, say 3-5% at first. The government needs revenue in order to function, but there is no reason why its primary source of revenue has to be income taxes. The first income tax was levied during the Civil War, but expired in 1872. The modern IRS isn’t even a hundred years old! (It was founded in 1913).

        • Chris Balsz

          It would be better to try and get 4% GDP growth a year to boost revenues. That can’t be directly ordered by the federal government, and so isn’t attractive to people who want Keynesian economics from the federal government.

        • Raskolnik

          “It would be better to try and get 4% GDP growth a year to boost revenues.”

          In the short term of course this is true. In the longer term, I think structural reforms to the tax code are in order.

        • sweatyb

          Why limit yourself to 4% growth? 20% growth per year forever! Everyone gets a pony!

  • PracticalGirl

    BTW- FF Tech Gods-

    Very cool upgrade on the edit function. Pops up quickly, easily manipulated- good job.

  • D Furlano

    Any rating agency would get laughed off the planet if downgraded the debt rating. The only thing they can rate is the possibility of a self imposed default that currently exists and in reality they won’t know until it actually happens.

    Downgrading US debt is like betting the sun won’t rise tomorrow. You can make the bet but it won’t matter if you’re right and you will look like the idiot you are if your wrong.

    • PingGuy

      Maybe you didn’t notice it but both Moody’s and S&P are talking about lowering the ratings. Not only that but they have to talk about it because they got in trouble for not talking about it when they rated all those sub-prime mortgages at AAA and never revised it. This is how they are supposed to operate, don’t let the fact that they’ve failed to do so in the past impact your impression of what they will do in the future.

    • sweatyb

      “The only thing they can rate is the possibility of a self imposed default that currently exists”

      And that’s exactly why they’re talking about reducing the rating.

      The US is the wealthiest nation on the planet. We can run huge deficits and have whopping debt because we have incredibly low tax rates. Through the Bush years the rating agencies figured that if things ever got dicey taxes would be raised to make whatever payments would be necessary.

      The current debt ceiling crisis is shaking that belief. The agencies now are afraid that the governance of the country is incapable of rational action. They’re afraid that the United States is a bad investment not because we’re not rich, but because we’re not sane.

      • D Furlano

        First line of the article

        “the US needs to cut $4 trillion in projected debt over the next ten years in order to avoid a downgrade”

        They didn’t say in case of a default they said if the debt is not reduced.

        In any case how can you rate a self imposed default? You can’t. That is why I said it really didn’t matter if they did.

        In a self imposed default there is no analysis and it can be reversed as quick as it happens.

        There is no other option and no other place to go. If you want a secure zero risk investment you buy US treasuries, period. Even after a “default” or if the US does not reduce its debt.

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  • planetirving

    We were told by the GOP and Conservatives that if we did not deal with the debt situation, we would end up like Greece or some other 3rd World Nation, being dictated to by the World Bank and or other such organization to assume austerity and painful remedies. Here we are now, being told what to do by rating agencies, because the GOP and the Conservatives decided to open Pandora’s Box. Mission Accomplished!

    You do not turn an ocean liner around on a dime. You plan and chart your course. Yes, the Democrats were dragging their feet and running up an already high debt (it was big to begin with) so the GOP had the upper hand to get big things done but instead, the situation is going from a control burn to a full fledge conflagration. Enough! To quote Shakespeare, “The fault, dear Brutus, is not in our stars, but in ourselves…”

  • Banty

    The ratings agencies are absolutely right to be looking at revenue, also. Their focus is on the deficit; they have no dog in the drown-gub’mint-in-the-bathtub impetus behind the cuts-only approach of the current GOP. The have analysts who are aware that the lack of revenue left us open to a ballooning of the deficit with the recession, since there was nothing to cover the drop in revenue from shrinking economic activity and increased drawing upon early SS, unemployment, and safety-net public assistance like Medicaid.

    Still, I’m getting increasingly uncomfortable with how ratings agencies are weighing in on public policy questions. Even where I agree with them, I wonder ‘who died and made them God’, as I do concerning the stranglehold credit scoring agencies (FICO, etc.) are having over the economic lives of individual Americans. It represents even more concentration of power in the financial sector, this time to watchdog agencies that have shown themselves in the housing bust to be partly captive to them.

  • armstp

    Anyone with half a brain on the right or the left would want to see the Bush tax cuts lapse.

    They have done absolutely nothing for us from a positive economic stand point and have only resulted in a bigger deficit and debt.

    It is too bad taxes went from being a fiscal policy tool to nothing but a wedge issue.

    • JimBob

      Anyone with half a brain knows that raising taxes in a bad economy only makes things worse.

      • Scritor

        Which, of course, is why we lowered them further in a good economy. Although in hindsight, when we continued to reduce taxes under Bush in the 2000s, the economy was growing mainly as a result of leveraging and asset bubbles since most people didn’t actually get richer to afford all the newly expensive stuff. I guess that was the point of the 2001 tax cuts, though: cut during a mildly bad economy. Then when the economy doesn’t recover to the same level and you have mediocre growth fuelled by extremely loose monetary policy and deregulation, cut even more. And then when the consequences of all of that give you the worst economic crisis since the Great Depression, cut taxes even more.

        Don’t worry, though. For completion, just remember that in 1999, during the lead up to the 2000 campaign, when our economy looked its rosiest since the 1960s, guess what the Republican Party offered? A firewall of support for cutting taxes! Which, of course, they had been supporting since well before they took over Congress in 1994. Note that if Clinton had decided to cut taxes at any point, they would have had no surplus to “give back to the people”. And yet, I don’t think it would have changed their inclinations on what to do a whit.

        • JimBob

          We lowered them in a good economy?? I seem to remember something called the internet bubble bursting in the spring of 2000. The NASDAQ going from 5000 to 1000. Then 9/11 and make no mistake about it, the economy was not good.

        • Chris Balsz

          “Note that if Clinton had decided to cut taxes at any point, they would have had no surplus to “give back to the people”. And yet, I don’t think it would have changed their inclinations on what to do a whit.”

          Right, if the American people were free to create that money, and then the government opted not to take it from them beyond what it was spending, then there would not be a surplus. And we wouldn’t have any inclination to mess with that.

      • plongstaff

        Reagan Budget Director: When The GOP Asks Who Would Raise Taxes In A Recession, ‘The Answer Is Ronald Reagan’

        http://thinkprogress.org/economy/2011/07/25/278100/reagan-raised-taxes-recession/

      • tommybones

        Actually, even my cat is smart enough to know that harsh austerity policies in a time of high unemployment and low demand is idiotic. You don’t take enormous amounts of money OUT of the economy when you have low demand and high unemployment numbers. It’s basic economics. Yet here we are…

        Of course, you admitted you are retired and financially secure, so the mass suffering won’t hurt you… so let the pain begin…

        It’s amazing how utterly immoral, selfish and heartless some people can be. Truly amazing. What’s wrong with you, anyway?

  • Chris Balsz

    “Why limit yourself to 4% growth? 20% growth per year forever! Everyone gets a pony!”

    Surely you believe Obama can get us there? You guys are still trying, aren’t you?

  • jak123

    For me, the most striking aspect of the debt ceiling debate is the president´s failure to help Americans grasp the underlying significance of the crisis. On the surface, the debate is about whether to raise the debt ceiling. That is obviously a vital matter that needs to be settled. But as I have watched the debate, I have concluded that the real issue is a moral one that goes to the heart of what it means, or has meant, to be an American. Ultimately, the question is whether Americans will be free to live their lives as they choose or whether they will be enslaved by big money. On one level, I am not surprised that the president has not framed the issue in such stark terms. He is a technocrat who apparently believes that reasonable people can work things out. Perhaps this debate has caused him to grasp, finally, that the Republicans, at least the ones in the House, are not reasonable people. Or perhaps he has privately welcomed this crisis as an opportunity to present himself as a reasonable man to the independent voters he apparently covets. No one really knows and that´s the problem, at least for me. Even at this late date, I still do not have a sense of who President Obama is and what he is willing to fight for. At times such as this, I find inspiration in Williams Jennings Bryan’s Cross of Gold speech and FDR’s attack on economic royalists in his acceptance speech at the 1936 Democratic convention. Bryan and Roosevelt left no doubt about where they stood on the issues of their day, which are eerily similar to the ones we face now. They left no doubt that they stood with ordinary Americans and against organized money. They saw, and they helped Americans see, that the real issue was one of freedom. Would Americans be able to engage in the pursuit of happiness, or would they be enslaved by big money. That is the issue underlying the debt ceiling debate today.

    • Raskolnik

      The real issue is one of freedom. Will Americans be able to engage in the pursuit of happiness, or will they be enslaved by big money?

      The problem is that the American people are increasingly losing the ability to disassociate the pursuit of money from the pursuit of happiness. The “Gospel of Wealth” has replaced the actual Gospels, in the minds of those who would sacrifice their immortal souls to gain the world and its riches.

    • D Furlano

      I would highly suggest do a little reading. There is no debt problem.

      It has been talked about but for some reason people don’t want to either suspend their beliefs for 5 minutes and look at what is really happening.

      http://www.atimes.com/atimes/Global_Economy/MG27Dj02.html

    • TerryF98

      A black man is not allowed to get angry or show emotion. You only have to look at the way the “liberal” media presented the Presidents reaction to the Orange man walking out of the talks.

      If he gets angry or shows emotion he is toast.

  • Chris Balsz

    “The POINT is that money is made, enabled by an infrastructure and stable environment both politically and physically. That combines with the efforts of the money makers to make the money. They owe back to maintain the infrastructure and other facets of our society that enabled the success of their efforts to begin with.
    I know that doesn’t accord with your philosophy. But it is the way it works in the real world. ”

    In the real world, when government sets out to punish people who benefit too much from this “infrastructure”, you see less effort to take advantage of economic opportunities. As we’re seeing now, when proposing a 4% growth rate is something to laugh at.

    • Raskolnik

      Why do you put “infrastructure” in quotes? Are you denying the importance of e.g. the Interstate system to inter-state commerce, and all the attendant (private) wealth creation?

      I am not any more of a Keynesian than Milton Friedman, however even Dr. Friedman recognized the benefit, perhaps even the necessity, of government picking up slack during a recession or depression. Our infrastructure is crumbling; more than 2/3 of our bridges are functionally obsolete, nearly 1/3 are structurally deficient, our airports are a joke, much of the nation still lacks broadband access… surely you can recognize the importance of a 21st-century infrastructure to an economy that wishes to be competitive in the 21st century? Or do you expect the almighty private sector to build our bridges and repair our roads?

    • Banty

      Noted: no reply to the point I made. Rather, we get a catch-all ideological statement about “punishment”.

      And when you drive somewhere next, you’re driving on said scare-quoted “infrastructure”. Indeed, to read this, you’re using said scare-quoted “infrastructure”.

  • LFC

    Yes, definitely let the Bush tax cuts expire. This was a boondoggle that the Republicans were unwilling to pay for so they changed the mantra that they would magically pay for thenselves. Well the CBO shows they had a nearly $2T negative impact. Game over.

    If the Republicans want their tax cuts back, all they need to do is find a way to pay for them. And the tax cuts can not be funded by any changes to Social Security or Medicare. These programs have their own funding and any surplus is part of their trust fund, thus stealing (er, “borrowing”) these surpluses for tax cuts is nothing more than a shell game.