The United States of America has lost it’s AAA credit rating for the first time in the history of time. It lost it in part because of it’s long term debt and deficits and, to be fair, because of the political nonsense displayed by the Congress and the White House.
The markets are down, at one point down nearly 400 points.
Barack Obama is going to address the nation this afternoon at 1:00.
Here’s what he should say:
- America DOES have a spending problem. While you can debate whether or not the S&P should have made the downgrade move, the point has been made; we need to address our fiscal irresponsibility and that begins with the President of the United States of America. To be sure, there have been bad decisions made along the way. But right now, right here, I am the CEO of the country; the quarterback. And it’s my job to bring us back.
- I have a plan. I am going to address the spending problems that have brought us to where we are. I’ll identify the areas where spending has increased faster than we thought and what we want. I’ll find ways to end programs that don’t work and streamline those that we can. This is going to be painful.
- Taxes on a fragile economy are dangerous; something we don’t wanna investigate. However, where possible the tax code should be rewritten to avoid needless loopholes and poor incentives. It doesn’t serve anyone to implement a 35% corporate tax rate only to have the most powerful corporations hire IRS tax attorneys to avoid paying any tax whatsoever.
Here’s what he will say:
- The credit rating was downgraded last week by Standard and Poor’s. This organization, who largely missed the worthiness of sub-prime securities during the housing boom and brought about the 2007 recession used numbers that were not accurate in arriving at the downgrade decision.
- The political infighting we saw from Congress in the last few weeks was brought about by a minority of the minority. A few select Congressmen felt that America had to be held hostage in order to maintain ideological positions.
- This downgrade is not reflective of America’s ability to pay her debts; it’s a Tea Party downgrade.
In terms of the economy, tax increases do less damage than spending cuts. Both can have a deflating effect, but when debt is this high that’s better than more debt. By all reports the deal President Obama had on the table, which would have averted a downgrade, was worth $4 trillion in deficit reduction, almost all of it cuts. Because there were very modest tax reforms, the GOP refused to go along with it. It was the grand bargain we need.
In reaching that, Obama stared down the “frustrati” as Norbrook calls them. He got the left wing of his party furious by recognizing the need for entitlement reform and deep spending cuts. He recognized political reality and offered the GOP a deal with fewer tax increases than he would have liked. It was a good deal, he showed leadership. John Boehner, who I believe is well intentioned, got scared of the tea party, or couldn’t lead his party to the deal. Instead of leading, he followed, putting bravado ahead of real action. The result is a downgrade.
I say that as graciously as possible, Obama should demand that Congressional leaders re-negotiate the deal, this time with no time pressure as the ‘super congress’ and possible triggers are there and the debt ceiling has been raised. I’ve had numerous arguments with friends on the left who are really angry at Obama and consider him having “joined the GOP” as one said. Obama pushed aside the extremes of his party to try to reach a deal (just go to the left side of the blogosphere and see the anger!). John Boehner and Mitch McConnell need to do the same. Most importantly, the American people should reward pragmatism and compromise building over uncompromising “principle.”
In terms of the economy, tax increases do less damage than spending cuts.
Well I think that government spending counts towards GDP. So, the more the government spends, the more “positive” impact that has on GDP. However, I get the impression that the GDP calculation including government was done as method of legitimately counting proper government expenditures. For example, the government could “spend” money by dumping it our of a U-Haul down I35 and it would count. Yet no one really thinks that is a good way to spend money.
By all reports the deal President Obama had on the table, which would have averted a downgrade, was worth $4 trillion in deficit reduction, almost all of it cuts.
We have no insight into what the details were. Listening to Obama, you can not but come to believe that ending tax breaks to millionaires and billionaires counts as a “spending cut”.
Because there were very modest tax reforms, the GOP refused to go along with it.
Here I agree. By simplifying the tax code we could reduce the rate and still make more money. There is simply no excuse for GE not paying any federal taxes.
John Boehner and Mitch McConnell need to do the same. Most importantly, the American people should reward pragmatism and compromise building over uncompromising “principle.”
In it’s simplest form, the nation need to do two things:
1. Cut spending. That is, spend FEWER dollars next year than this year.
2. Increase revenue. That is, bring in MORE dollars next year than this year.
The GOP passed a bill that did both. The Democrats refused to even take it up in the Senate. Obama flatly said he would veto it.
In the end we have a bill that will increase revenues AND increase spending. There is no spending cut.
The GOP bill was one sided. There is a progressive Democratic plan to cut deficits by $4 trillion published that is also one sided (has more tax increases, fewer cuts, more defense cuts).
Neither is feasible. We have divided government. Obama and the Democrats did not say “our way or no way,” like many Republicans did. Obama’s plan — which they were very close to agreeing on — was a compromise, one that angered the left wing of his party. Any compromise that has a chance of seeing reality will also anger the right wing of the Republican party. Both sides have to go beyond political rhetoric and make tough choices. The “wings” of each party are never happy with compromise, that’s a fact of nature. So if we are to get this done, both “wings” will be pissed.
Tax cuts are said to stimulate the economy as does spending. Cutting spending and increasing taxes do the opposite. Cutting spending takes money directly out of the economy, while tax increases takes money away from things not directly related to stimulating the economy (investment in foreign companies, consumption of foreign goods, repayment of debt, etc.) So in general cutting spending harms economic growth more than increasing taxes. But many tax hikes and spending cuts can be designed to have a minimal impact.