S&P downgrades debt outlook for the United States

Noting that unlikelihood that the severe budget deficits and national debt problems will be resolved, Standard & Poor’s downgraded the outlook for the United States’ public debt to negative:

Standard & Poor’s lowered its outlook for the nation’s long-term debt Monday, saying the political grousing over the deficit could put more pressure on the still shaky economic recovery.

“The outlook reflects our view of the increased risk that the political negotiations over when and how to address both the medium- and long-term fiscal challenges will persist until at least after national elections in 2012,” said S&P credit analyst Nikola Swann.
The outlook means that there is a one-in-three likelihood that it could lower the long-term rating on the United States within two years, S&P said.

The move puts additional pressure on Congress to come up with a plan to bring down long-term deficits, which lawmakers from both political parities say are unsustainable.

S&P does provide this specific point on the rival proposals presented by Rep. Paul Ryan, which offers specifics in terms of tax and entitlement reform, and President Barack Obama, which was more generalities than an actual proposal:

We view President Obama’s and Congressman Ryan’s proposals as the  starting point of a process aimed at broader engagement, which could result in  substantial and lasting U.S. government fiscal consolidation. That said, we see the path to agreement as challenging because the gap between the parties remains wide. We believe there is a significant risk that Congressional  negotiations could result in no agreement on a medium-term fiscal strategy until after the fall 2012 Congressional and Presidential elections. If so, the  first budget proposal that could include related measures would be Budget 2014  (for the fiscal year beginning Oct. 1, 2013), and we believe a delay beyond  that time is possible.

Standard & Poor’s takes no position on the mix of spending and revenue measures the Congress and the Administration might conclude are appropriate.  But for any plan to be credible, we believe that it would need to secure support from a cross-section of leaders in both political parties.

As Jim Harper notes over at Washington Watch, the 2012 budget crisis began on Friday when the House passed the Path to Prosperity. That plan has already been rejected by Senate Democrats. And with what seems like every politician in Washington sending out a press releases about the S&P’s actions - Republicans calling for spending cuts and Democrats pushing tax hikes on a segment of society already carrying 70% of the tax burden - we’re no closer to an agreement stopping the hemorrhaging.

Ryan’s plan may not be perfect, but it’s better than what Obama has put on the table, as non-descriptive as he has been, notes Michael Tanner:

Rep. Paul Ryan’s proposal represents a different way out of the crisis. He would not touch Medicare for anyone on the program today or anyone getting close to retirement. No one would be thrown off of the program.

But younger workers would transition to a new system, one in which they have more control over the money that Medicare pays and therefore the decisions about what benefits they would receive. They would receive a subsidy from the government to help them purchase private health insurance. Lower income seniors and those with higher health care costs would receive a bigger subsidy. Seniors could combine the government subsidy with whatever they wish to spend of their own money to buy an insurance plan that has a cost and benefits that best meets their needs. Instead of a one-size-fits-all system, seniors would have many more choices than they have today.

Will it mean that in the future seniors will have to pay more of their own money or settle for a plan with fewer benefits, as Democrats have charged? Yes. But that is going to happen with or without Ryan’s plan.

Medicare cannot simply continue to promise paying for everything for everyone when it doesn’t have the money to do so. The question isn’t whether future seniors will have to pay more or get less. It is whether those choices will be imposed on them from above or whether they will be empowered to make those decisions for themselves.

What we have been doing hasn’t worked. Medicare is broke. Rep. Ryan offers a better way.

The “promises” made by past Congresses are bleeding us dry and we can’t tax our way into prosperity, as many Democrats suggest - remember, they thought we could spend ourselves to prosperity. Cuts are going to have to be made, not only in discretionary spending, but in defense as well. And eventually adults are going to have to stand up and deal with entitlements in a responsible way.

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