The S&P has downgraded American credit from AAA to AA+, the first time in history. The left is scrambling to blame the GOP for this and is fixated on one paragraph
Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act. Key macroeconomic assumptions in the base case scenario include trend real GDP growth of 3% and consumer price inflation near 2% annually over the decade.
The issue here, however, is that while present law presumed the GOP tax cuts would go away, the policy presumption is that they would get extended. Likewise, this is not blaming the GOP. This is a statement of reality that the GOP wasn’t going to raise taxes.Consequently, because the GOP refused to raise taxes, the alternative needed to be more cuts.And S&P clearly believes that the cuts the debt deal made were not enough. And who opposed big cuts? Why yes, a guy named Barack Obama and the Democrats.
We view the act’s measures as a step toward fiscal consolidation. However, this is within the framework of a legislative mechanism that leaves open the details of what is finally agreed to until the end of 2011, and Congress and the Administration could modify any agreement in the future. Even assuming that at least $2.1 trillion of the spending reductions the act envisages are implemented, we maintain our view that the U.S. net general government debt burden (all levels of government combined, excluding liquid financial assets) will likely continue to grow.
The Democrats can spin this as blaming the GOP all they want since they clearly got outplayed and still saw a downgrade, but the S&P downgrade has nothing to do with any specific policy. In fact, S&P says
Standard & Poor’s takes no position on the mix of spending and revenue measures that Congress and the Administration might conclude is appropriate for putting the U.S.’s finances on a sustainable footing.
The whole focus is on the debt burden. And if taxes are not going to go up, as is reality, spending must go down.The left, spinning otherwise, is simply trying to escape blame.