America Could Face Another Credit Downgrade If Deficit Reduction Isn’t Passed

budget-deficit-us

This is what our fiscally unserious political leadership has led us to:

Moody’s Investors Service, in the latest reminder of the tense fiscal negotiations looming for Congress and the White House, said it could downgrade the U.S. government’s credit rating next year if steps aren’t taken to tackle the rising debt.

Specifically, it said if Congress repeals looming spending cuts and tax increases that begin next year and doesn’t replace these measures with large-scale deficit-reduction measures, the government would lose its top-notch rating.

The warning comes as Washington has become consumed with the November elections and talks of a bipartisan deal to reduce the deficit have mostly stalled. But after the elections on Nov. 6, policy makers have to deal with numerous fiscal issues before Jan. 1, 2013, when the large spending cuts are set to begin and tax rates will rise for more than 100 million Americans.

Moody’s states no preference for deficit reduction through spending cuts or tax hikes, which seems foolish.  Any revenue gains to be made through tax hikes are likely to be offset by declining tax revenues from the economic activity those hikes depress, not to mention the tax avoidance they will inspire.

The problem with America’s budget isn’t that the government isn’t collecting enough in taxes.  It’s that America has more government than it can afford.

Rob Port is the editor of SayAnythingBlog.com. In 2011 he was a finalist for the Watch Dog of the Year from the Sam Adams Alliance and winner of the Americans For Prosperity Award for Online Excellence. In 2013 the Washington Post named SAB one of the nation's top state-based political blogs, and named Rob one of the state's best political reporters. He writes a weekly column for several North Dakota newspapers, and also serves as a policy fellow for the North Dakota Policy Council.

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  • jamermorrow

    The U.S. credit rating should already be downgraded. Only a moron would buy government bonds or treasury bills right now.

    • mikemc1970

      The Japanese are snapping them up. No doubt so we’ll take their side in that island dispute with China.

    • Bat One

      True that!

  • SigFan

    Another credit downgrade seems inevitable at this point. We’ve done nothing to stop the insane spending and debt growth and ultimately the collapse of the dollar. Hopefully November will put the brakes on, but it may be a case of too little too late.

  • caeslinger

    I disagree somewhat on the tax increase idea. Certainty in the tax code, along with simplicity, and lack of loopholes in theory makes increasing revenue a possibility without decrease in economic activity. Productivity gained. But I don’t think that’s what you’re necessarily getting at.

    But lets not forget, 2 items from the Clinton era tax cut of 1997 result in almost 50% more lost revenue to the US Treasury than the Bush tax cuts of 2001 and 2003 result in for those who make $250,000 or more. So anytime some talks about lost revenue from the wealthy, they aren’t being truthful and merely want wealth redistribution, no true deficit reduction.

    Do away with the mortgage interest deduction should be done immediately

    Doing away with tax credits for education expenses not expended on actual expenses (i.e. credits received because of loans received, not payments made) need to be eliminated.

    A hidden tax increase with Obamacare will insure one of the largest loopholes – employer funded healthcare – will drastically reduce when many employers drop coverage for their employees, but this is another that should be eliminated entirely. Of course the entire system needs much more reform.

    Defense spending should be cut drastically, 30% – 50%.

    Pell grants, TANF, EITC, Child Tax Credit (refundable especially), Food stamps, etc., should all be pared back relative to percent of poverty line.

    Retirement age should be increase for Medicare and SSI. Higher standards should be placed on SSDI. Higher taxes should be placed on Medicare and SSI, SSDI benefits for those with other streams of income that make them secure without SSI help.

    401k taxes should be raised for withdrawals based on income tax code. The money was tax free to invest, but should not be taxed as capital gains because of that.

    As long as tax increases include tax REFORM and major spending cuts (including defense) and spending reform. All this should be on the table.

  • Bat One

    This is exactly the sort of issue on which Americans ought to expect some sort of leadership from the nation’s chief executive. And of course Obama has provided none. Zero. Zilch. Zippo.

    He has ignored his own Simpson-Bowles commission report for nearly two years, and according to journalist/author Bob Woodard the sole reason that the last deficit deal between Congress and the White House fell apart and resulted in the looming “Taxmageddon” and sequestration was because Obama refused to negotiate in good faith and would not compromise. (Woodard is a registered Democrat.)

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