Standard & Poor’s fired a red flare into the Friday night
sky, downgrading America’s credit rating for the first time in
history. On Saturday, senior S&P executives warned that a
second downgrade could happen if the spending cuts promised by the
debt ceiling deal didn’t occur.
The Treasury Department objected to the downgrade when
advised by S&P of the planned action hours before it happened.
Treasury accused S&P of being off by $2 trillion, saying the
error raised “… fundamental questions
about the credibility and integrity of S&P’s ratings
action.”
But Treasury’s objections were brushed aside when it
became clear that the error — which S&P corrected in its math
— wasn’t material to the downgrade conclusion. The argument
between S&P and Obama’s Treasury Department resulted from a
difference between the White House’s assumptions and S&P’s: the
Treasury insisted that all the spending cuts and debt reductions
included in the debt ceiling deal should be counted and S&P
didn’t buy it. In short, S&P wouldn’t accept the old Washington
“if-then” deal I
inveighed against in ancient times, all the way back on 11
July.
The S&P downgrade
memorandum makes clear that the objection is to “spending cuts”
that are left to future action. It says, “We view the [debt ceiling
deal]’s measures as a step toward fiscal consolidation. However,
this is within the framework of a legislative mechanism that leaves
open the details of what is finally agreed to until the end of
2011, and Congress and the Administration could modify any
agreement in the future.”
This boils down to the fact that “if-then” deals never
result in reductions in government spending. S&P had warned
that real cuts of about $4 trillion over ten years were needed to
restore American economic stability. The downgrade means that
S&P believes that our political class — especially the Obama
statists — will never live up to the bargain they made. And —
from the caterwauling from liberals, and renewed insistence on tax
hikes from the White House — we know that even the bad deal the
Republicans had to make won’t long survive.
The debt ceiling legislation made minuscule spending cuts
— $21 billion in 2012 and $42 billion in 2013 —in the context of
automatic increases in spending that so greatly outweigh the cuts
as to render them absurd. All the deal does is kick the can down
the road to the “supercommittee” it creates which that either
compromise on $1.5 trillion in cuts or trigger massive cuts in
defense spending and other “discretionary” spending. (Even if the
trigger is pulled, Social Security and Medicare are protected from
cuts exceeding 2%.)
As S&P’s David Beers said yesterday, one of the
biggest reasons for his firm’s downgrade is that the debt ceiling
deal did nothing to rein in entitlement spending. Other S&P
executives hinted that if the supercommittee doesn’t make
substantial cuts, there could be a further downgrade to America’s
debt rating.
In the deal, and S&P’s reaction to it, are two lessons
we cannot afford to ignore.
First is that dealing with America’s enormous debt and
deficit has to be done by making real cuts that take effect now and
aren’t left to future Congresses or state legislatures to render
ineffective. That means that feel-good legislation that cannot have
any effect for many years — such as the balanced budget amendment
Republicans wasted two critical weeks on — cannot be part of a
responsible solution. Spending “caps” — like those featured in the
“cut, cap and balance” package — have no credibility in the
financial markets because Congress and the Obama administration
will not abide by them.
Second is that Republicans have to take far greater
political risks and do a much better job in taking their case for
real spending cuts to the American people. House Speaker John
Boehner (R-OH) made a very good speech responding to Obama’s July
22 debt crisis talk, but after that, the Democrats dominated the
media. Senate Majority Leader Harry Reid (D-NV) was everywhere,
calling Republicans “extremists.” Americans were deluged by pundits
and Democrats calling the House’s Tea Party members radicals and
worse.
Then came Vice President Biden’s statement quickly leaked
from a closed Democratic caucus meeting that Tea Party Republicans
“have acted like terrorists.”
The second lesson is easy to learn and apply. The latest
CBS News/New York Times poll shows that while 47% of Americans
disapprove of Obama’s handling of the debt ceiling crisis, 72%
disapprove of the way Republicans did. That’s the result of not
hitting back harder and more often to the onslaught of Obama
speeches and crazed rhetoric from Biden and others.
RNC chairman Reince Priebus should start running some
national television ads now and continue them through the election.
They should be aimed at the Tea Partiers. Show the faces of Tea
Party members at work and at home with their families, smiling
people saying nothing more than “Hey, Mr. Biden: I’m a Tea Partier
and I’m no terrorist. I just want Obama and you to stop spending
too much.”
Every time Obama goes on television to talk about the
economy, a tough Republican speech should follow. There’s a deep
bench of speech makers to call on including Rep. Paul Ryan, Sen.
Jeff Sessions, Sen. Jon Kyl, and Rep. Michele Bachmann to name just
a few. Those speeches should re-ignite the fire under the Tea Party
kettle.
The first lesson is harder, but even more
important.
Liberals are screeching that Obama lost the debt ceiling
deal because it makes massive cuts in spending. That’s nonsense.
The only thing Obama and his statist cohorts have lost is the
precedent. Before the debt ceiling deal, no actual reductions in
federal spending could be made (and there’s a good argument that
they still haven’t). Nevertheless, if small cuts can be made,
bigger cuts are possible. Which is what Republicans have to
dedicate themselves to do, even if it means pulling the trigger
mechanism of the supercommittee.
We know what’s going to happen when the congressional
“supercommittee” reports in November. Democrats will have insisted
on huge tax increases, compromised not one bit on spending, and
Republicans will have agreed to tiny tax hikes in exchange for tiny
spending cuts. Neither will agree to do anything about entitlement
spending in the election year. So deadlock will result and the
“trigger” will be pulled. Democrats prefer confrontation to real
compromise because they have no intention of abiding by the debt
ceiling deal in any event.
The Dems will try — in every bill that Congress considers
this year — to raise taxes and spending regardless of their
commitments in the debt ceiling deal. Republicans can’t be bound to
a deal the Democrats will reflexively violate.
Republicans shouldn’t fear a deadlock, nor should they
respect a deal the Democrats will violate continuously. Republicans
should embrace supercommittee deadlock because it will present them
with an opportunity to win parts of what they lost in the debt
ceiling deal. When the supercommittee reports a deadlock and the
trigger is about to be pulled, Democrats will count on Republicans
being overcome with fear of blame. At that point, House Republicans
can vote down the two debt ceiling increases on the straight
up-or-down vote called for in the debt ceiling deal and bring the
whole debt ceiling “crisis” back to the boiling point. That won’t
be enough because the Democratic Senate won’t vote for a resolution
of disapproval, but Republicans can regain the initiative and serve
up a political shockwave that may knock out Obama or create a
Republican Senate majority or both.
Republicans should then put the Dems on the spot by
proposing a comprehensive bill, like the one I proposed
two weeks ago. Raise the debt ceiling through the 2012 election,
but include specific and immediately effective spending cuts in a
ratio of at least $3 in cuts to $1 in debt ceiling hike. Impose
entitlement spending cuts by means testing, enabling those under 45
years of age to opt out of Social Security, and call the Dems’
bluff. Pass it through the House and leave it on Harry Reid’s
doorstep.
If Republicans go along with tax hikes or retreat from
real spending cuts, they will lose the economic battle and probably
re-elect Obama.
