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Will conservatives be able to use the Standard & Poors warning to leverage some meaningful budget cuts out of the administration, like those contained in the Ryan budget? Maybe, but it’s probably a long shot at best. The deficit debate boils down to whether we use tax hikes and modest budget cuts to start closing the gaps, as the president has proposed, or whether we start making some really meaningful spending reductions like the Ryan plan lays out. As a credit rating agency, Standard & Poors doesn’t care how a government closes the gap between spending and revenue, so long as the gap closes. Over at City Journal, Nicole Gelinas cited the United Kingdom’s experience with Standard & Poors as an example of how the agency’s warnings can be used to send exactly the wrong message. Standard & Poors had downgraded the UK’s future creditworthiness outlook to “negative” under Gordon Brown’s regime, but the agency changed its mind after David Cameron’s government applied some leftist solutions to “fix” the problem:
The Conservative-led coalition government increased taxes on VAT earlier this year, from 17.5 to 20 percent, dampening retail sales. It also went ahead last year with former prime minister Gordon Brown’s plan to hike the top personal-income tax rate to 51 percent (compared with America’s top rate of 35 percent). Though Britain has promised spending cuts, those cuts remain mostly in the future. Yet the Conservatives have reaped a political reward. S&P last year returned their nation’s outlook to “stable.”
The left would very much like to see the same kind of “solution” applied here. A tax hike could possibly make a dent in the deficit, but no conceivable tax hike could do anything but delay the onset of the entitlement crisis for a few more years. The only real solution is for the government to make the kind of meaningful, painful spending reductions that will restore some kind of balance between what we spend and what we have to spend. That’s the point that lawmakers ought to take away from Standard & Poors warning, but history tells us that lawmakers rarely hear the messages that really matter.
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