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The Hill: Neither Plan Will Save US Credit Rating

From The Hill:

Both White House and GOP debt plans put US credit rating at risk

By Erik Wasson | December 11, 2012

Deficit-reduction proposals from Speaker John Boehner (R-Ohio) and President Obama fall short of clearly stabilizing the debt, according to budget experts, putting the U.S. credit rating at risk of a downgrade.

This article seems to be a subtle extension of what the New York Times was arguing yesterday. That is, neither Obama’s plan (of raising the tax rates) nor Boehner’s plan (of limiting deductions) will raise enough revenue to put a real dent in the deficit — so we will have to do both.

The Hill doesn’t quite say that, but it’s the clear implication. Otherwise, the credit rating firms will lower our credit rating. So this is what is probably what is coming down the pike.

Under both proposals, U.S. debt would continue to grow as a percentage of gross domestic product, unless the economy grows at a rapid pace, according to experts who have studied the proposals.

Notice that "growing the economy at a rapid pace" is not even being considered. Even though it has worked every time it has been tried. Even with worse recessions. (Cf. Ronald Reagan.)

While some suggest new talks between Obama and Boehner suggest a deal is in reach, they have doubts it will be big enough to meaningfully reduce deficits — or satisfy credit rating agencies.

“More is going to have to be done. I’m actually getting a bit more optimistic that a fiscal-cliff deal will get done, but at the same time I’m less optimistic that a ‘grand bargain’ will be achieved,” Bob Bixby of the Concord Coalition said. “The real issue is where everything ends up as a percentage of GDP.”

Obama’s plan would reduce the debt from nearly 75 percent of GDP to 73 percent of GDP by 2022. Boehner’s offer gets the percentage to 72 percent, under the analysis of the independent Committee for a Responsible Federal Budget…

Neither plan reduces deficits enough to put the debt on a clear downward path in 2022, according to experts who say a debt-to-GDP ratio above 70 percent is generally considered in the danger zone for an eventual European-style debt crisis.

The debt-to-GDP ratio was below 50 percent between the 1950s and 2007, highlighting the enormous growth in the debt over the last few years…

And which party took control of the power of the purse in 2007? And which party has held the White House since 2009?

Obama’s opening bid in negotiations included $1.6 trillion in new tax revenue, $600 billion in spending cuts and $435 billion in new spending and tax breaks to spur economic growth.

And never mind that Obama’s spending cuts are 10 to 20 years down the road, while his spending increases will occur immediately.

Boehner floated a framework of $800 billion in new tax revenues and up to $1.35 trillion in spending cuts…

And, sad to say, most of these spending cuts are also put off to some nebulous future.

Many observers believe Obama and Boehner will agree to a framework for a new round of negotiations on tax and entitlement reform that would lead to further reforms. That would kick further deficit reductions down the road and set up new fights over spending and raising the debt ceiling down the line…

You see? If they would just agree to both an increase in tax rates as well as limiting tax deductions, everything could be solved and all of our problems would go away.

Happy days would be here again.

This article was posted by Steve on Tuesday, December 11th, 2012. Comments are currently closed.

One Response to “The Hill: Neither Plan Will Save US Credit Rating”

  1. River0 says:

    Delusional thinking is infecting Washington with a vengeance.

    Did you hear the Demonicrats (Dick Durbin, Harry Reid, and others) speak of the trillion-dollar “cuts” they’ve already made? They come because we’re not going to occupy Iraq and Afghanistan in the future, they say.

    By that logic I just “cut” $90,000 from my budget by not buying the latest Mercedes in the showroom.

    Spending soars, and we now borrow 46% of all Fed expenditures. according to the Congressional Budget Office. We borrowed 30% just last year.

    If John Boehner gave the Demonicrats everything they wanted in tax hikes, it wouldn’t run the Feds for more than a few months. And financial growth would be damaged further.

    It’s mass hysteria and mob madness we’re witnessing.

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