Below Standard & Poor

It is not often that a President gets a failing grade from a financial institution. It happened today. From Reuters:

S&P, which assigns ratings to guide investors on the risks involved in buying debt instruments, slapped a negative outlook on the country's top-notch credit rating and said there's at least a one-in-three chance that it could eventually cut it.

A downgrade, which would leave Germany and France with a higher rating, would erode the status of the United States as the world's most powerful economy and the dollar's role as the dominant global currency.

If investors start demanding higher returns for holding riskier U.S. debt, the rise in bond yields would crank up borrowing costs for consumers and businesses. That would threaten to hurt the economy as it recovers from the worst recession since World War II.

Congress, of course, must pass a budget. Here both sides get a share of the blame. To bring the United States back to solid fiscal ground, we are probably going to have to raise taxes. Raising taxes on the rich may indeed be in order, but that isn't going to come near solving the problem. There just isn't enough taxable income left among the rich. We're going to have to raise taxes on middle class Americans as well.

The wealthiest 1% of Americans pays almost 40% of income taxes. The wealthiest 10% pays about 60%. The bottom 50% pays almost nothing. When you cut off half of Americans from paying income taxes, you effectively cut them out of the political loop. Republicans are more responsible for this skewing of the tax burden than the Democrats are, and they will defend it with all their might.

We are also going to have to reduce spending on Medicare, Medicaid (et al.), and, yes, Social Security. In the case of the first two, we are going to have to reduce it by a lot. The Left in general and the Democrats in particular are dead set against meaningful reductions in these programs. All the New York Times and E. J. Dionne can talk about is how destructive the Republican cuts would be. They write as if the fiscal problem did not exist.

Unfortunately, it does. The Reuters piece above hardly tells the half. Current long term budget projections, alarming enough on their own, assume that the U.S. continues to enjoy the Triple A rating that it has enjoyed since 1917. If we lose that, borrowing costs will go up and the debt will increase at a much higher, much less manageable rate. Bloomberg has this:

The yield on the benchmark 10-year Treasury note jumped as high as 3.45 percent in the minutes after the S&P report from 3.37 percent. The yield was back down to 3.37 percent at 4:27 p.m. as investors focused on speculation that Greece will be unable to avoid a default, driving them to the relative safety of U.S. debt.

We're not Greece yet, A.I., but that's only because there is still a Greece. Greece isn't going to last.

It's the President's job to provide leadership when we approach a crisis. We are and he ain't. If Obama had any substance, this would have been his moment to seize history. He might dare to tell the Republicans what is implicit in the Wall Street Journal article cited above. He might dare to tell Democrats what is obvious to everyone: that government has made promises it cannot keep and it must begin to face reality. If he did that, he might deserve a statue some day.

Unfortunately, he is utterly bereft of substance. He is as empty as a windsock; flaccid, but for the wind. Two months ago he produced a budget that ignored the fiscal dilemma altogether. Last week he pious announced a "budget plan" that included neither a budget nor a plan. Its only purpose was to position him to attack Republicans.

The Standard & Poor report is a sign of impending disaster. It will have no effect on the President. The Senate is somnambulant. The House cannot act on its own, had it the will and clarity. Hope rests on the Republican nomination process. May God have mercy on our souls.

It is unlikely that a statue of Barack Obama will ever rest in any significant public place. He should be commemorated by something. I suggest a windsock.

Comments

[BSchwartz]

Putting all budget and debt issues aside, from what I understand the S&P warning had nothing to do with the issues you raise. The one and only reason they warned of a lowered US credit rating was because of the threat by the GOP to not raise the debt ceiling causing the US to go into default on its loans.

[George Mason]

BSchwartz, you sound like Donald. S&P sent the warning because like so many Americans, they have no confidence that the government, Obama in particular, is serious about addressing the ever growing debt and its causes. Yesterday Pelosi and Obama's spokes people demagogued the issue, stating Republicans want to change Medicare when it does not need to be changed. With leadership like this we will soon be in junk bond territory.

[Dave]

Conveniently left out of the Reuters quote...

"Moody's put some issues of U.S. Treasury debt on watch for a downgrade in 1996 when the White House and Congress failed to extend the government's debt ceiling."

and

"DoubleLine Chief Executive Jeffrey Gundlach said Monday that the S&P warning 'should serve as an effective cattle prod in pushing the politicians toward a program of spending cuts and tax increases.'"

Oh ya, and then there's this...
http://abclocal.go.com/kabc/story?section=news/local/orange_county&id=8080624

[KB]

BS: Here is a quote from S&P: "We believe there is a material risk that US policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer 'AAA' sovereigns."

The issue is not the short term approach of the debt limit. It is "the middle and longer term budgetary challenges".

[KB]

Dave: I understand your need to change the subject.

[Headshots Los Angeles]

I think the Cuts in the Military budget should be at the top of the list. This isn't the cold war era. We don't need military bases all of the world. We don't need the be The United States Empire of the World.

[duggersd]

You can always talk about raising taxes, but the downside is if you raise taxes by 10%, you do not necessarily gain 10% in revenue. In fact, I am willing to bet the total sum would be somewhat less. Taxes are a drain on the economy. Money taken out of the economy takes away from employment.
I do not know what the magic number is, but I do know there is a correlation between taxes going down and revenue going up. Part of the increase comes from the incentive for people to actually invest in a business and maybe even hire people. Increased employment increases the number taxpayers. These two things cause revenue to go up. And that is what we really want, right? Revenue to go up?

[Dave]

@duggersd, considering that taxes both for regular folks and for corporations are at historic lows and at the low end of the scale for industrialized nations, the economy should be booming... Why is that not the case?

[Jimi]

HeadShot,

"I think the Cuts in the Military budget should be at the top of the list. This isn't the cold war era. We don't need military bases all of the world. We don't need the be The United States Empire of the World."

Fine....but it doesn't solve the problem. The problem is much bigger than that. Dismantle the Military tommorrow, and you only scratch the surface. You could tax every American at 100%, and cut the entire Militray Budget, and you still don't solve the problem......you see the dilema?

[Jimi]

Dave,

"the economy should be booming... Why is that not the case?"

That's a False Choice! Your assuming things could not be worse. They could be much worse. Why exactly do you think Obama and the Democrats did not raise taxes when the Bush Tax cut was to expire? Because they knew it would make it worse...that's why!

"taxes both for regular folks and for corporations are at historic lows"

What you are refering to are the Marginal Tax Rates. An Example from the 1960's when the Tax Rates reached their peaks @ 91%: An Example:

The first $4,000 taxed at 20%
The next $4,000 taxed at 22%
The next $4,000 taxed at 24%
etc.etc.etc.
etc.etc.etc.
Anything over $400,000 taxed at 91%

$400,000 in 1965 is the same as $2,768,576.92 in 2010. In 1965 there were only 3.6 Million family's and 150,000 individulas making over $15,000 dollars a year. The Median income for all family's in 1965 was $6,900 a year. You can see that in comparison of Adjusted Gross Income of 1965 to today, would produce an Effective tax rate of 15% to 18% in 1965, where an Effective Tax Rate of 30% to 40% in 2010, the tax burden was much less in 1965, even though the marginal tax rates were much higher on individual tax brakets per income.

The secret is that back when it appeared the tax rates on citizens and corporation were much higher, they tax code actually had less ability to generate revenue, because of the tax breaks and loopholes that were built into it. Also, keep in mind that the share of payroll taxes, back then, payed by individuals was much less.

In the 1980's most of the breaks and loopholes went away, which gave the government to ability to decrease the tax rate severely, but still generate more revenue. Since the last overhaul, tax breaks and loopholes have been built back into the code, and that is why the Effective Tax Rate apprears to have gone down, but thisd does not take into consideration your state and local taxes.

Also,

"and for corporations are at historic lows"

This is incorrect. They appear to be low based on historical values, but they are at their highest based on comparison to every other OECD Competitor. Our corporate tax rate is 50% higher than our competitors. We are at an effective rate of 39.21%, and the only country higher is Japan at 39.54%, keep in mind also, that depending on which state or city your corporation is in, that rate can fluctuate drastically, making your company very uncompetitive. Besides, the reality is Corporations don't even pay taxes, because the burden just gets passed on to the employees, customers, and the profits are held within the corporation while they use loans for growth and expansion purposes, and then dedcut the interest on those loans to offset profist taken out of the corporation. Any corportae Executive will tell you that they prefer about 10% growth per year minimum, and will actually shift any major gains over 20% in profit over several years to offset any losses to taxes.

http://www.oecd.org/document/60/0,3746,en_2649_34533_1942460_1_1_1_1,00.html#C_CorporateCaptial

[duggersd]

Dave, besides what Jimi said, which absolutely nukes you, I was only pointing out that raising taxes does not necessarily increase revenues by the amount one would think. The fact of the matter is if you raised taxes by 10%, I am betting you get less than a 10% increase in revenue. The other fact of the matter is that in the past when rates were decreased, revenues increased. I made no assertions about the economy.
Some time ago, the capital gains tax was decreased and revenues from the capital gains tax increased. BHO has already said that the main reason to raise CG taxes is because it is more fair. http://www.youtube.com/watch?v=WpSDBu35K-8

[Donald Pay]

Read between the lines of the S&P's rather shaky analysis. What their statement really says is the corporate elite and too-big-to-fail financial institutions hate democracy, hate the messy debate, give and take, and discussion between the public and their elected representatives. They are really attacking the institutions established by our Constitution.

Elite financial institutions, like the ones who nearly brought down the world economy, have been doing these sorts of end runs around democratic governments for decades. Meanwhile S & P covered up for the banks and financial elite prior to the financial meltdown.

[Ken Blanchard]

Donald: Whatever your Sandalista playbook says about evil corporations, the S&P has weight with investors. That might matter soon. Moreover, isn't the S&P's skepticism well-warranted? We really are running unsustainable deficits. The President really isn't taking them the least bit seriously. Even if he were, the Democrats really don't want to allow any significant cuts in entitlements and the Republicans really don't want to allow any increase in taxes. None of these facts can be swept away by an ad hominem attack on Standard and Poor.

[Donald Pay]

S & P has clout mainly because it is given this clout by the SEC. The SEC should neuter S & P, and any other financial organization that tries to extort federal largesse by threatening to tank the credit and securities markets. This is clearly a playbook being used by the big money boys (with the aid of Republicans). We see it at the state and local level as well (see Michigan), where democratically elected governments who put up too much of a fight against the boondoggles of the corporate and financial elite are threatened with extinction.

[George Mason]

Donald you are providing great comedy relief to all of us who live in the real world and are facing the real issue here.

[Dave]

You are right Jimi, let me restate my position...

considering that taxes both for regular folks and for corporations are at historic lows and at the low end of the scale for industrialized nations, the GOVERNMENT SHOULD HAVE NO PROBLEM WITH REVENUE BECAUSE THEY SHOULD BE ROLLING IN CASH... Why is that not the case?

After all, @duggersd claims "fact of the matter is that in the past when rates were decreased, revenues increased."

And thanks for making my point.

Who is being taxed at 91%? NOBODY!

"and for corporations are at historic lows"

"This is incorrect. They appear to be low based on historical value"

[Jimi]

Dave,

"GOVERNMENT SHOULD HAVE NO PROBLEM WITH REVENUE BECAUSE THEY SHOULD BE ROLLING IN CASH"

No...No...No...

The size of the economy dictacts how much revenue can be brought in not, the tax rates. The revenue the government takes in has been held at around 18% to 20% of GDP since the end WWII. The velocity of money, size and the rate of growth in the economy determine what that value ends up being. You can't punish a behvior and expect more of that behavior as a result. When you raise taxes there is a consequence in the behavior of consumers and investors as a result. The economy is based on a buisness cycle. When it gets too hot, you raise taxes to cool it down otherwise you create bubbles, and the government ends up taking more money from the public than it needs. When the economy is running too cold, you decrease taxes to spark buying power and expansion. Obviously, you do not know that every single President both Democrats and Republicans have both raised Taxes, and lowered taxes at one times in their Presidency in one or more areas. There is nothing taboo about raising or lowering taxes......the reason why you do it, and the timing of it are the points of the debate.

"Why is that not the case?"

Our economy has decreased in size and strength. The Real Unemployment Rate is around 15%, and the Unemployment Rate is at 9%. These are record highs for the past thirty years. All the growth we have seen over the last year has not even got us back to where we were before this recession started, but meanwhile we increased spending and debt, and more of that re-growth goes to serviceing the new debt, and repaying the entitlement trust funds....That's Why!

An increase is taxes will surely kill any growth trend we have going for us right now.

"Who is being taxed at 91%? NOBODY!"

And rightfully so! Without the same loopholes and tax breaks everybody with money will surely stop producing, or take their money elsewhere....I know I would.

"and for corporations are at historic lows and at the low end of the scale for industrialized nations"

Yes....this is an incorrect statement. The tax rate is at the high end for industrized nations. Why exactly do you think corporations attempt to offshore, and move their headqauters somewhere more friendly? Simple....because they don't pay the tax, they pass it on to employee and customers, and if they want to compete on a gobal scale, it is more economical for them the offshore.

[Dave]

Quick read...

http://www.salon.com/news/politics/war_room/2011/04/19/republicans_deficit_taxes/index.html

and

http://www.salon.com/news/politics/rush_limbaugh/index.html?story=/politics/war_room/2011/04/20/limbaugh_clinton_taxes

[duggersd]

Dave, "claims????"
US tax revenue 1963 $106.6 billion
US tax revenue 1966 $130 billion
US Tax revenue 1981 $599.3 billion
US Tax revenue 1984 $666.4 billion
US Tax revenue 1986 $769 billion
US Tax revenue 1989 $999 billion
US Tax revenue 2001 $1991 billion
US Tax revenue 2004 $1880 billion recession & 9/11
US tax revenue 2008 $2524 billion
BTW, even in 2010 revenues were $2162 billion in spite of a major recession. The problem is not revenue, but the spending. When you see those jumps, what do they have in common? They are about 2 years after major tax cuts, except for the 2004 situation in which there was a recession and a terrorist attack which made a major hit on our economy.

[Jimi]

Dave,

You want to a talk about a kindergarden analysis of history...those two articles are just that. They are a mile wide and a milimeter deep. But you go ahead a keep believeing what you want to beleive, your free to do so.

[Dave]

So you are actually the "elitist?"

[Jimi]

Dave,

Clinton cut the Capital Gains Taxes, and he also benefited from a dot.com and tech bubble that he had nothing to do with.

[Jimi]

Dave,

"So you are actually the "elitist?"

Just spit out what you are trying to say....I don't read minds?