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Is the U.S. Credit Rating a Victim of GOP Sabotage?

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Is the U.S. Credit Rating a Victim of GOP Sabotage?

Old 08-05-2011, 11:36 PM
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Default Is the U.S. Credit Rating a Victim of GOP Sabotage?

This a Yahoo Financial article headline (see below link and partial quote from the article). I came across this article and was amazed at the duplicity and sheer ignorance (perhaps stupidity) of the author's central premise and argument.

If any off us were in this basic kind of financial shape personally and asked our parents for their advice, you know any of our parents would tell us to stop spending more than we make, stop buying things on credit and learn to live within our means.

Yes, we could get a better paying job or work 2 or more jobs to increase our income but that isn't always an option or even viable health-wise. And regardless of how much we increase our income, it would never be enough unless we controlled our over-spending.

Interestingly, many financial advisers give similar advice in many of the financial articles written on how an individual can get out of debt, reduce their debt level, etc.

So why is this advice (essentially what many Tea Partiers are saying) so wrong for our country, according to Obama and the Democrats? And apparently for some Republicans in congress as well. Why is this?


Is the U.S. Credit Rating a Victim of GOP Sabotage?

By Daniel Gross

By Daniel Gross | Contrary Indicator – 4 hours ago

The fiscal clown show continues. A few days after Congress and the White House agreed to raise the debt ceiling and cut spending, Standard & Poor's has downgraded the United States of America's credit rating from AAA to AA+.

S&P, which covered itself in a substance other than glory during the mortgage crisis, may have a poor record and strange methodology when it comes to sovereign ratings. France, which has a far higher debt per capita ratio than the U.S., still enjoys a AAA rating. And a downgrade, alone, doesn't mean U.S. interest rates will spike -- on Monday or at any time in the future. Japan's credit rating was downgraded several years ago, when the interest rates its government paid on bonds was already extremely low, and they've generally trended lower in the years since.

Market conditions, the trajectory of economic growth and relative value can play as big -- if not a bigger -- of a role in determining interest rates than a rating.

But that doesn't mean we should ignore S&P's Friday evening shot across the bow. In downgrading the U.S.'s credit rating, S&P points out what has long been obvious: Washington's inability to come to an agreement on how to close the large fiscal gaps that have emerged since the recession began is troubling. Recent events have sapped the agency's confidence that the government can and will do what is necessary to align revenues with spending commitments. And it's difficult to escape the conclusion that America's credit rating was intentionally sabotaged by Congressional Republicans.

It has long been obvious to all observers -- to economists, to politicians, to anti-deficit groups, to the ratings agencies -- that closing fiscal gaps will require tax increases, or the closure of big tax loopholes, or significant tax reform that will raise significantly larger sums of tax revenue than the system does now. Today, taxes as a percentage of GDP are at historic lows. Marginal rates on income and investments are at historic lows. Corporate tax receipts as a percentage of GDP are at historic lows. Perhaps taxes don't need to rise this year or next, but they do need to go up in the future.

Otherwise, the math of deficit reduction simply doesn't work. And that's how the deficit reduction deals signed off on by Republican presidents like Ronald Reagan and George H.W. Bush came about.
Yet the action in Washington in the past year has all gone in the opposite direction. President Obama deserves some of the blame. Several months ago, he struck a deal with Congress to make the fiscal situation worse -- extending the Bush tax cuts for two more years and enacting a temporary cut in the payroll tax.

But Congressional Republicans deserve much more of the blame. For this calamity was entirely man-made -- even intentional. The contemporary Republican Party is fixated on taxes. It possesses an iron-clad belief that the existing tax rates should never go up, that loopholes shouldn't be closed unless they're offset by other tax reductions, that the fact that hedge fund managers pay lower tax rates than school teachers makes complete sense, that a reversion to the tax rates of the prosperous 1990's or 1980's would be unacceptable......

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Old 08-06-2011, 03:37 AM
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nope, arithmetic just as he says.
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Old 08-06-2011, 04:15 AM
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Good post, Cal Hunter.

We have a chance to get it right in 2012 by throwing every congress critter out of office.
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Old 08-06-2011, 11:44 AM
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Originally Posted by Venator2 View Post
nope, arithmetic just as he says.
I am curious why you are saying this. From some of the material I've read (i.e. past taxation levels and generated tax income for the US), raising or lowering the taxes doesn't seem to change tax revenue dramatically. It helps some if you lower taxes but there isn't the explosion of tax revenue that you might think. The item that changed the most was that lower taxes seemed to generate more investments in business, etc. which drove the economy higher yet still only resulted in marginal tax revenue increases.

Putting aside political hyperbole (unlike the author of this article), what data are you referencing to determine this author is right on his figures?

I agree that the tax code should be reformed and some intelligent level of taxes put into place that encourages rather than discourages business and growth. I'm still wrapping my head around the total idea that corporations don't pay taxes as I would guess they pay for a lot of "business expenses" that substantially accomplish somewhat similar goals (i.e. Workmans' Comp, Disability, Social Security, etc.).

I realize that taxes, business growth, imports/exports, international competition, etc. are all inextricably tied together with lots of tricky consequences if you simply make a knee-jerk decision or change in any of those areas. So with all of that in mind, why do you say the author's #'s are right and what makes you believe such ideas would work? This is a serious question as I'm curious and is not intended as a drive-by putdown or some of the other crap that unfortunately passes for posts so often.
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