Credit rating agency Egan Jones downgraded the United States Thursday on concern over the sustainability of public debt. Egan Jones is one of the most important ratings firms in the world; they lowered our credit level from AA+ to AA. The firm reduced America from AAA to AA+ in July 2011, just before Standard & Poor’s did the same.
Egan Jones warned. “Without some structural changes soon, restoring credit quality will become increasingly difficult . . . without some structural changes soon, restoring credit quality will become increasingly difficult.” They added that there was a 1.2% probability of U.S default in the next 12 months. The company cited the fact that the US’s total debt, which now equals its total GDP, is rising and soon will eclipse the national GDP; the company sees the debt rising to 112% of the GDP by 2014.
The debt grew 23.6% the first two years of Obama’s presidency. When the debt is more than 100% of the GDP, treasury notes fall, which is a problem because they are used for transactions between financial institutions. This, in turn, could raise rates on mortgages and other loans, which would discourage growth in the economy, as well as state and local governments feeling the pinch, which could eliminate more services.
Paul Ryan has offered a debt reduction plan which would reduce the current six federal income tax rates to just 2 — 10% and 25%. His plan would also reduce the federal corporate income tax rate from 35% to 25%, the same rate as the international average. Because of the additional revenue accrued from economic growth as a result of the tax reductions, federal revenues could double over the next 10 years; the added revenue would be more than the entire GDP of almost every other country in the world.
Meanwhile, President Obama continues to vilify Ryan’s ideas, saying they are, “a Trojan horse, disguised as deficit-reduction plans . . . thinly veiled social Darwinism.” And White House projections show the federal debt’s ratio to gross domestic product growing to a record 124 percent in 2050 under Obama’s plan.
He just wants to keep spending and spending and spending money we don’t have. Money that he didn’t earn. Money that people not even born have not yet earned.
One thing is certainly true about President Obama — no matter how many times people point out the falsehoods in his speeches, he just keeps making them. Case in point: his latest “economic fairness” address.
In that speech Tuesday, Obama once again tried to build a case for his liberal, big-spending, tax-hiking, regulatory agenda. But as with so many of his past appeals, Obama’s argument rests on a pile of untruths. Among the most glaring:
• Tax cuts and deregulation have “never worked” to grow the economy. There’s so much evidence to disprove this claim, it’s hard to know where to start. But let’s begin with the fact that countries with greater economic freedom — lower taxes, less government, sound money, free trade — consistently produce greater overall prosperity.
Here at home, President Reagan’s program of lower taxes and deregulation led to an historic two-decade economic boom. Plus, states with lower taxes and less regulation do better than those that follow Obama’s prescription.
Obama also claimed the economic booms in the ’50s and ’60s somehow support his argument. This is utter nonsense. Taxes at the time averaged just 17% of the economy. And there was no Medicare, no Medicaid, no Departments of Transportation, Energy or Education, and no EPA. Had Obama been around then, he would have decried it all as un-American.
• Bush’s tax cuts on the rich only managed to produced “massive deficits” and the “slowest job growth in half a century.” Budget data make clear that Obama’s spending hikes, not Bush’s tax cuts, produced today’s massive deficits.
And Obama only gets his “slowest job growth” number by including huge job losses during his own term in office. Also, monthly pre-recession job growth under Bush was about 40% higher than post-recession growth has been under Obama.
• During the Bush years, “we had weak regulation, we had little oversight.” This is patently false. Regulatory staffing climbed 42% under Bush, and regulatory spending shot up 50%, according to a Washington University in St. Louis/George Washington University study. And the number of Federal Register pages — a proxy for regulatory activity — was far higher under Bush than any previous president.
• The “wealthiest Americans are paying the lowest taxes in over half a century.” Fact: the federal income tax code is now more progressive than it was in 1979, according to the Congressional Budget Office. IRS data show the richest 1% paid almost 40% of federal income taxes in 2009, up from 18% back in 1980.
• We can keep tax breaks for the rich in place, or make needed investments, “but we can’t do both.” Not true. Repealing the Bush tax cuts on the “rich” would raise only about $70 billion a year, a tiny fraction of projected deficits. With or without the Bush tax cuts, the country can’t afford Obama’s agenda.
President Bush signed the first wave of tax cuts in 2001, cutting rates and providing tax relief for families by, for example, doubling of the child tax credit to $1,000.
At Congress’ insistence, the tax relief was initially phased in over many years, so the economy continued to lose jobs. In 2003, realizing its error, Congress made the earlier tax relief effective immediately. Congress also lowered tax rates on capital gains and dividends to encourage business investment, which had been lagging.
It was the then that the economy turned around. Within months of enactment, job growth shot up, eventually creating 8.1 million jobs through 2007. Tax revenues also increased after the Bush tax cuts, due to economic growth.
In 2003, capital gains tax rates were reduced. Rather than expand by 36% as the Congressional Budget Office projected before the tax cut, capital gains revenues more than doubled to $103 billion.
The CBO incorrectly calculated that the post-March 2003 tax cuts would lower 2006 revenues by $75 billion. Revenues for 2006 came in $47 billion above the pre-tax cut baseline.
Here’s what else happened after the 2003 tax cuts lowered the rates on income, capital gains and dividend taxes:
GDP grew at an annual rate of just 1.7% in the six quarters before the 2003 tax cuts. In the six quarters following the tax cuts, the growth rate was 4.1%.
The S&P 500 dropped 18% in the six quarters before the 2003 tax cuts but increased by 32% over the next six quarters.
The economy lost 267,000 jobs in the six quarters before the 2003 tax cuts. In the next six quarters, it added 307,000 jobs, followed by 5 million jobs in the next seven quarters.
The timing of the lower tax rates coincides almost exactly with the stark acceleration in the economy. Nor was this experience unique. The famous Clinton economic boom began when Congress passed legislation cutting spending and cutting the capital gains tax rate.
If, in the 2012 election, half the country decides to vote for the person who gives the best speeches and who is cheered on the Comedy Channel, then we are going to have four more years of 9% unemployment and 1.4 trillion dollar deficits. Barack Obama knows nothing whatsoever about economics.
Last week, while other commentators ran around Cairo’s Tahrir Square, hyperventilating about what they saw as an Arab 1989, I flew to Tel Aviv for the annual Herzliya security conference. The consensus among the assembled experts on the Middle East? A colossal failure of American foreign policy.
This failure was not the result of bad luck. It was the predictable consequence of the Obama administration’s lack of any kind of coherent grand strategy, a deficit about which more than a few veterans of U.S. foreign-policymaking have long worried. The president himself is not wholly to blame. Although cosmopolitan by both birth and upbringing, Obama was an unusually parochial politician prior to his election, judging by his scant public pronouncements on foreign-policy issues.
Yet no president can be expected to be omniscient. That is what advisers are for. The real responsibility for the current strategic vacuum lies not with Obama himself, but with the National Security Council, and in particular with the man who ran it until last October: retired Gen. James L. Jones. I suspected at the time of his appointment that General Jones was a poor choice. A big, bluff Marine, he once astonished me by recommending that Turkish troops might lend the United States support in Iraq. He seemed mildly surprised when I suggested the Iraqis might resent such a reminder of centuries of Ottoman Turkish rule.
The best national-security advisers have combined deep knowledge of international relations with an ability to play the Machiavellian Beltway game, which means competing for the president’s ear against the other would-be players in the policymaking process: not only the defense secretary but also the secretary of state and the head of the Central Intelligence Agency. No one has ever done this better than Henry Kissinger. But the crucial thing about Kissinger as national-security adviser was not the speed with which he learned the dark arts of interdepartmental turf warfare. It was the skill with which he, in partnership with Richard Nixon, forged a grand strategy for the United States at a time of alarming geopolitical instability.
The essence of that strategy was, first, to prioritize (for example, détente with the Soviets before human-rights issues within the USSR) and then to exert pressure by deliberately linking key issues. In their hardest task—salvaging peace with honor in Indochina by preserving the independence of South Vietnam—Nixon and Kissinger ultimately could not succeed. But in the Middle East they were able to eject the Soviets from a position of influence and turn Egypt from a threat into a malleable ally. And their overtures to China exploited the divisions within the communist bloc, helping to set Beijing on an epoch-making new course of economic openness.
The contrast between the foreign policy of the Nixon-Ford years and that of President Jimmy Carter is a stark reminder of how easily foreign policy can founder when there is a failure of strategic thinking. The Iranian revolution of 1979, which took the Carter administration wholly by surprise, was a catastrophe far greater than the loss of South Vietnam.
Remind you of anything? “This is what happens when you get caught by surprise,” an anonymous American official told The New York Times last week. “We’ve had endless strategy sessions for the past two years on Mideast peace, on containing Iran. And how many of them factored in the possibility that Egypt moves from stability to turmoil? None.”
I can think of no more damning indictment of the administration’s strategic thinking than this: It never once considered a scenario in which Mubarak faced a popular revolt. Yet the very essence of rigorous strategic thinking is to devise such a scenario and to think through the best responses to them, preferably two or three moves ahead of actual or potential adversaries. It is only by doing these things—ranking priorities and gaming scenarios—that a coherent foreign policy can be made. The Israelis have been hard at work doing this. All the president and his NSC team seem to have done is to draft touchy-feely speeches like the one he delivered in Cairo early in his presidency.
These were his words back in June 2009:
“America and Islam are not exclusive and need not be in competition. Instead, they overlap, and share common principles—principles of justice and progress; tolerance and the dignity of all human beings.”
Those lines will come back to haunt Obama if, as cannot be ruled out, the ultimate beneficiary of his bungling in Egypt is the Muslim Brotherhood, which remains by far the best organized opposition force in the country—and wholly committed to the restoration of the caliphate and the strict application of Sharia. Would such an outcome advance “tolerance and the dignity of all human beings” in Egypt? Somehow, I don’t think so.
It’s a disaster. The Obama presidency is a disaster in every area – fiscally, socially and even in foreign policy.
His strategy of giving happy-clappy speeches, bowing to enemy dictators, pussyfooting around terrorists and cutting the defense budget has emboldened our enemies. Barack Obama enables evil to thrive. Now Lebanon is run by Hezbollah and Egypt is poised to fall to Hamas. It’s a disaster. A colossal failure.
The fact that so many well-meaning Americans voted for this man disgusts me. So many left-wing Americans are spoiled, lazy, envious and ignorant. They vote based on what they see on the Comedy Channel, and so that they would fit in with their wordsmith professors. What a disaster. People are dying because the people who voted for Obama were too lazy to look at his voting record. They had no time to look at his record. No time to read ratings by groups like Citizens Against Goverment Waste or the National Taxpayers Union. Obama-voters wanted to be entertained. Their hatred of Sarah Palin for trivialities has increased the evil in the world. That makes Obama voters evil.
WINTERY KNIGHT 