More On S&P’s Credit Rating Downgrade
Economist William McBride of the Tax Foundation writes at their Tax Policy Blog that “(w)hile the administration and others have criticized S&P for downgrading U.S. debt, there are at least three reasons it makes sense.” He then goes on to discuss each of the following three reasons:
- “Reason 1: The debt ceiling deal fails to address long term debt, which is mainly coming from healthcare entitlement spending.”
- “Reason 2: Many OECD countries spend more than we do on welfare programs, but they also have the VAT.”
- “Reason 3: In a world where healthcare spending is not addressed, and we do not have the VAT, interest payments will become a dangerously large share of tax revenues.”
Rather than comment on each reason, readers can read the entire post. It’s not very long, and includes a very helpful chart of the growth in healthcare entitlements.
One of the editorials in today’s Wall Street Journal discusses S&P’s credit rating downgrade. Of special interest, the Journal points out, “A spend and tax policy mix always leads to economic decline.”
Remember when you learned that a picture is worth a thousand words? Well, one chart in the Journal’s editorial is that good of a picture. Titled “Entitlement Nation,” it shows that “federal payments to individuals continue to grow as a share of all spending, as the nearby chart shows.”
The Wall Street Journal editorial makes the following important point:
“Despite S&P's opinion, there is no chance that America will default on its debts. The real importance of the downgrade will depend on the political reaction it inspires.”
For more on S&P's downgrade of America's AAA credit rating, see the August 6 and August 7, 2011 Growls.