Becoming an Informed Voter (Part 2: America's credit rating slides further.)

On August 5, 2011, a little more than a year ago, Standard & Poor’s downgraded the U.S. credit rating for the first time in history.  The reason for the downgrade was due to the inability of the U.S. government to manage its finances.  Their belief was that the U.S. Government had become “less stable, less effective, and less predictable.” (1)  This was a message to the U.S. government that if you do not change your ways, there is a strong possibility you will not be able to meet your debt obligations.  When an individual continues to spend more than their income, they eventually face the prospect of bankruptcy so we must ask the obvious question, is the U.S. on the verge of bankruptcy?

According to John Allison who served as chairman and CEO of BB&T, the nation’s 10^th largest bank, bankruptcy for the U.S. is a mathematical possibility “unless it dramatically changes its fiscal direction.” (2).  Mr. Allison looked at the numbers and predicted bankruptcy for the U.S. in 20 or 25 years.  The numbers he was looking at were from 2010 when the federal debt was $13 trillion.  I wonder what he would be saying today with the debt fast approaching $16 trillion and the pending implementation of Obamacare and Taxmageddon that will slow the struggling economy even more. 

Since Mr. Allison’s prediction in 2010, the Republicans have taken over control of the House of Representatives.  However, we have seen no progress in reducing spending or the debt so the prospect of another credit rating downgrade is very real.  So, in this election year we must ask what either President Obama or Mitt Romney would do to address this issue and prevent another downgrade. 

President Obama continues to promise to reduce the deficit but in his first term we have seen him do little more than talk about the issue.  He promises to raise taxes on the rich to reduce the deficit but then promises additional spending such as free healthcare that will further increase deficits.  Obama would argue that the increased taxes on the rich will cover the additional spending for health care but fails to consider the reduction in economic activity that will result from raising taxes on the rich.  For proof of this economic fact, we only have to look at what is currently happening in California.

Californians have for many years continued to elect progressives to office who continue to spend, regulate, and tax the state into oblivion burying their heads in the sand believing there will be no consequences.  It appears the people of California are finally facing reality.  California has some of the highest tax rates in the country so if Obama’s theory of taxing the rich to reduce deficits worked, we would expect California’s government to be awash in cash.  However, revenue from consumer sales fell a whopping 33.5 percent of $475 million.  In other words, people are paying their taxes by spending less (3). 

Mitt Romney has a completely different strategy.  First he addresses tax policy which he states is the foundation shaping “almost everything individuals and enterprises do as they participate in the economy.” (4)  Either tax policy stifles economic activity or it can encourage it.  Our current tax system stifles economic activity because it “is an accretion of decades of patchwork decisions that came into being with no systematic thought for their implications for job creation or economic growth. (4).  His plan is to implement a simpler tax code that makes it easier for individuals and enterprises to predict and plan for their tax liability. 

Second, Romney plans to curtail some of the onerous regulations that serve as a hidden tax on individuals and businesses.  In fact, the Small Business Administration estimates the price tag of regulations at $1.75 trillion annually, which is more than the cost of individual and corporate income taxes, combined (5).  Freed from the anchor of these regulations businesses will become more profitable, be able to expand, and create jobs for the 8.2% of Americans currently unemployed. 

We have proof that this strategy increases revenues to the government because it worked in 1980 for Ronald Reagan and in 2001 for George W. Bush in that revenues to the government did increase.  However, liberals will cite, and rightly so, that deficits did increase during the 1980’s and after 2001 but these deficits were not the result of the tax and regulatory cuts since they actually increased revenues.  The ballooning deficits were the result of out of control spending. 

Liberals believe spending by government is necessary to stimulate the economy but what they fail to realize is that when government gives money to some enterprises it must take it from another enterprise so the real net gain to the economy is zero (6).  Deficit spending must also be covered with borrowing, which incurs debt future generations will be required to pay back. 

Controlling spending was what was missing from the tax and regulatory cutting policies of the 1980’s and after 2001.  This, I believe, is why Romney added Paul Ryan to the team by naming him as his choice for Vice President.  Ryan has a plan to balance the Federal Budget that will stop increases in deficits and debt and start making our government more fiscally responsible.

This is exactly what Standard and Poor’s wanted to see from our government when it downgraded the nation’s credit rating.  Looking at the different policies of both candidates for president reveals the reason why John Hawkins had further declines in America’s credit rating as one of his seven things to expect if Obama is reelected. 

We as voters can prevent any further downgrades by voting for Romney/Ryan on November 6 so our government can become fiscally responsible.  I encourage everyone to share this on Twitter, Facebook, and via email to encourage others to vote for a fiscally responsible government.

1. Goldfarb, Zachary A. S&P downgrades U.S. credit rating for first time. washingtonpost.com. [Online] The Washington Post, August 5, 2011. [Cited: August 21, 2012.] http://www.washingtonpost.com/business/economy/sandp-considering-first-downgrade-of-us-credit-rating/2011/08/05/gIQAqKeIxI_story.html.

2. Jeffery, Terence P. Bankruptcy of U.S. is ‘Mathematical Certainty,’ Says Former CEO of Nation's 10th Largest Bank. chsnews.com. [Online] Cnsnews.com, November 4, 2010. [Cited: August 21, 2012.] http://cnsnews.com/news/article/bankruptcy-us-mathematical-certainty-says-former-ceo-nations-10th-largest-bank.

3. Before it's News. California’s tax revenue drops 33.5 percent exposing Sacramento’s delusion. beforeitsnews.com. [Online] Before It's News, August 21, 2012. [Cited: August 21, 2012.] http://beforeitsnews.com/tea-party/2012/08/californias-tax-revenue-drops-33-5-percent-exposing-sacramentos-delusion-2449544.html.

4. Romney, Mitt. Tax: Fairer, Flatter, and Simpler. mittromney.com. [Online] Romney for President. [Cited: August 21, 2012.] http://www.mittromney.com/issues/tax.

5. —. Regulation: Cutting the Red Tape. mittromney.com. [Online] Mitt Romney for President. [Cited: August 21, 2012.] http://www.mittromney.com/issues/regulation.

6. —. Spending: Smaller, Simpler, Smarter Government. mittromney.com. [Online] Mitt Romney for President. [Cited: August 21, 2012.] http://www.mittromney.com/issues/spending.