By Jack Minor
For the first time in U.S. history, the country has had its credit rating downgraded after it failed to cut spending levels sufficiently, during the recent debt ceiling debate.
Last Friday Standard & Poors announced it had downgraded the U.S. credit rating from AAA to AA+. The Obama administration disputed the downgrade, saying it was based on an accounting error by S&P.
Following the downgrade, Rep. Michelle Bachmann, who is running for the Republican presidential nomination, said “The United States has had a AAA credit rating since 1917. This President has destroyed the credit rating of the United States through his failed economic policies and his inability to control government spending by raising the debt ceiling.”
Congress passed a bill raising the debt limit and cutting spending, however they were warned that the amounts in the legislation would be insufficient to avoid a credit downgrade. As the Gazette previously reported the only proposed plan that would have avoided the downgrade was the Republican “cut cap and balance plan” that passed the house, but was not allowed to be voted on in the Senate.
Senate Democrats and the president stated they would not accept cuts of that magnitude. With the Aug. 2 deadline for raising the limit approaching, in order to get a bill passed Congress compromised by enacting a bill that raised the debt limit by $2.1 trillion immediately, while cutting only $21 billion the first year. Under the deal the government has promised to cut $2.1 trillion over a 10 year time.
What may confuse many Americans is the definition of a “cut” in Washington. The average household defines a cut as reducing the amount they are currently spending. In what is known as baseline budgeting, the federal government defines a cut as an increase that is less than the amount projected.
What this means is that if a particular department or programs budget was projected to increase by $10 billion and ended up increasing only $6 billion from the previous year, the Congressional Budget Office would score that as a $4 billion cut to the program. The cuts proposed in the budget deal are not actually cuts at all; they are simply a decrease in the rate of increase.
Bachmann pointed out the $21 billion in cuts in the budget deal amounted to only ½ of one percent of total spending for the entire year. During the budget debate, Bachmann continuously voted no on all the budget plans including cut, cap and balance. Bachmann said her reasons for doing so was that none of them went far enough in decreasing actual spending.
In announcing the downgrade S&P said the recent plan to reduce the countries debt “fell short” of its expectations. S&P also criticized what it called “political brinkmanship” during the debate. “The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed.”
Following the downgrade announcement Senate Majority Leader Sen. Harry Reid (D-Nev.) immediately called for higher taxes.