President Obama achieved the historic downgrading of America’s credit rating the old-fashioned way. He earned it.
He came into office with federal spending already near an historic peak, with a percent of GDP at 20.7 percent and having increased by one-seventh during the Bush years. One year earlier Bush had joined with then House Speaker Nancy Pelosi to enact a pointless Keynesian stimulus package of $168 billion, which the record will show created exactly 0.00 jobs, and stimulated nothing but national debt.
Send In the Clowns
Barack Obama surveyed the continuing wreckage of the financial crisis, and decided to follow the advice of the reknowned economist Otter, “who famously said in ‘Animal House,’ this situation ‘absolutely requires a really futile and stupid gesture be done on somebody’s part,'” as quoted by Andy Kessler in Monday’s Wall Street Journal.
Barack Obama provided that gesture in the form of the nearly $1 trillion Keynesian stimulus package, which, though five times as big as Bush-Pelosi, still created exactly 0.00 jobs.
But that was just the beginning. President Obama went on to lead the nation to a mercurial increase in federal spending of 28 percent in his first three years alone. Then, after the nation’s voters repudiated these policies with an historic New Deal-sized shellacking in the 2010 elections, President Obama repudiated the voters with his historic proposed 2012 budget in February 2011.
That budget proposed to increase federal spending by another 57 percent by 2021, ensuring that President Obama would increase the national debt by more in just one term in office than all other Presidents in American history combined.
On the course set by that budget, America’s national debt as a percent of GDP is set to smash through the all-time record set during World War II, rocket right on through the level suffered by Greece when it fell into national bankruptcy, and keep right on rocketing into the unchartered stratosphere.
President Obama realized he had fallen behind the political curve when the adult in the room, House Budget Committee Chairman Paul Ryan, proposed a budget instead that would not only lead to a balanced budget, but would ultimately pay off the national debt, as scored by the Congressional Budget Office. And then the Republican-controlled House passed it.
So President Obama did what he does best. He gave a speech. On April 13, he demanded still more tax increases, on top of the sweeping tax increases he already has enacted in current law for 2013, to finance his runaway spending increases. When House Budget Adult Paul Ryan asked the Democrat-appointed CBO Director Doug Ehlmendorf if he had scored President Obama’s April 13 proposals, Ehlmendorf replied in exasperation that the CBO doesn’t score speeches.
For political atmospherics before the 2010 election, the President appointed his own debt commission, with great fanfare. When the commission reported a debt and deficit reduction plan in December after the election that rightly proposed to cut spending and tax rates, with tax reform, the President ignored it and took no steps to implement any of its recommendations. Instead he proposed the public policy malpractice 2012 budget discussed above, which kicked the proposals of his own commission to the curb.
When Tea Party Republicans tried to impose some spending discipline on Obama in the debt limit fight, President Obama laid on the negotiating table all of $2 billion in spending cuts, which is the equivalent of cutting one penny out of every $20 in federal spending. So all year long leading up to the credit downgrade (despite record setting federal spending, deficits and debt) President Obama effectively refused to cut spending at all, proposing instead still more tax increases, on the road to doubling federal taxes and spending relative to the economy.
Tea Party to the Rescue
The Tea Party-dominated Republican House majority already acted in the spring to completely solve the debt crisis by passing the Ryan budget, with $6.2 trillion in cuts in the first ten years alone. Despite President Obama’s unreasoned rhetoric, that budget was carefully crafted so no one would actually suffer as a result of those cuts. Sure some people would lose government windfalls and those who are able, in time, would have to pay for more themselves. But that is exactly what we need right now.
If Senate Democrats and the Obama Administration had acted to implement that Ryan budget, then there would have been no debt downgrade. But instead they responded with unreasoned derision, running an ad that showed Ryan throwing an elderly woman over a cliff, even though his reforms would not apply to anyone over 55 today. That ad itself contributed to last Friday’s debt downgrade, showing Washington unreasoned and unwilling to address the problem.
Then during the debt limit debate in July, the Tea Party-dominated Republican House acted to completely solve the debt crisis yet again, passing the Cut, Cap and Balance Act of 2011. It cut government spending for fiscal year 2012 (which starts on October 1, 2011) by $111 billion — a modest, reasonable slice of Obama’s projected spending of $3,729 billion ($3.7 trillion). It also adopted a cap on total federal spending that would reduce it to the long run, postwar, historical average of 20 percent of GDP by 2017.
The Act provided as well for President Obama’s requested increase in the debt limit, if Congress first passes a specified Balanced Budget Amendment to the Constitution and sends it to the states for ratification. That Amendment would require Congress to balance the budget every year except in a wartime emergency once it became effective. That would mean that the federal government would have no legal authority for increased borrowing except under the wartime procedures specified in the Amendment.
That Balanced Budget Amendment would also include a supermajority requirement to raise taxes. That means no tax increase could be enacted without a vote of 67 percent in favor in each house. The Constitutional Amendment also specifies a cap on federal spending equal to 19.9 percent of GDP, limiting federal spending to the long-term average for the past 70 years.
But once again the Democrat-controlled Senate failed to even consider the measure, and President Obama laughed it off. Standard and Poors (S&P), however, wasn’t laughing. After downgrading the credit rating for U.S. debt from the AAA rating that has prevailed since President Washington, S&P said publicly that Cut, Cap and Balance would have avoided the downgrade.
The debt limit downgrade and the reaction of the markets since then shows that the Tea Party Republicans were right all along in calling for the above measures, and passing them through the House. Trying to blame the Tea Party for the debt downgrade, like the wildly unreasoned President Obama and other Democrat pirates are now trying to do, is like blaming Jenny Craig for obesity in America. The fault lies entirely with President Obama and the Democrat-controlled Senate, who failed to take any action on the measures to completely solve the problem that the House already passed. S&P and the markets have thoroughly vindicated the Tea Party position.
President Obama’s Disgrace
After the historic debt downgrade on Friday, President Obama addressed the nation on Monday. He would have done better to follow Glenn Beck’s advice on his radio show earlier in the day: “Shut up, Mr. President.”
While the President was talking, blaming everyone but himself, threatening the nation with further crippling tax increases, and further demonstrating that America suffered a President who was only interested in political advantage rather than solving the crisis, the stock market dropped another 200 points, finishing the day down 631. It was one of the worst days in stock market history.
The President said, “So it’s not a lack of plans or policies that’s the problem here. It’s a lack of political will in Washington. It’s the insistence on drawing lines in the sand, a refusal to put what’s best for the country ahead of self-interest or party or ideology.”
This is another example of Obama’s political misdirection and even calculated deception. Throughout his entire presidency, Obama has done nothing but refuse to put what’s best for the country ahead of what he sees as his own political self-interest. He consistently refused to cut spending — until the Tea Party forced quite modest cuts on him as part of the debt limit deal — and he has continued to promote still more tax rate increases. But it is an old Saul Alinsky trick, straight out of Rules for Radicals, to accuse your opponents of exactly what you are doing. And Obama during his “community organizer” days was one of the nation’s leading experts and tutors on Alinsky.
Indeed, in Monday’s speech, Obama called for still more tax increases “that will ask those who can afford it to pay their fair share.” I am beginning to think that Obama does not even understand the tax code he is administering. Or maybe he really is a Marxist infiltrator who thinks the economy will be just fine if he outright loots all the nation’s investors, employers, and small businesses.
Before President Obama was even elected, official IRS data for 2007 showed that the top one percent of income earners already paid more in federal income taxes than the bottom 95 percent of income earners combined. The top one percent paid 40.4 percent of their income taxes for that year (almost twice their share of income). The bottom 40 percent of income earners as a group paid no federal income taxes that year. They instead received net payments from the IRS equal to four percent of total federal tax revenues.
The last time America balanced the budget, in the late 1990s, House Speaker Newt Gingrich and President Clinton did it entirely with spending cuts and no tax increases. Indeed, tax rates were cut to spur economic growth. Clinton and Gingrich enacted the largest capital gains tax cut in U.S. history, slashing the rate from 28 to 20 percent. Along with some other tax cuts on capital, that helped to promote an economic boom that produced surging revenues.
The Republican Congress then cut federal discretionary spending from 1995 to 1996 by 5.4 percent in real dollars, after adjusting for inflation. As a percent of GDP, federal discretionary spending, including defense and non-defense, was slashed by 17.5 percent in just four years, from 1995 to 1999.
The Congress also adopted some entitlement reform. The AFDC welfare program was terminated as an entitlement, and sent back to the states with work requirements and federal financing in fixed, finite block grants. Agricultural subsidies were phased out under the Freedom to Farm reforms (later reversed under House Speaker Dennis Hastert). President Clinton deserves credit for going along with these Congressional Republican reforms.
As a result, $200 billion annual federal deficits (which had prevailed for over 15 years) were transformed into surpluses by 1998, peaking at $236 billion by 2000. The national debt was reduced by $560 billion in surpluses from 1998 to 2001.
But don’t expect the Obama Administration to understand any of this. With all of the serious economists Obama has had working for him, policy is set by the President himself, in consultation only with his campaign manager David Plouffe.
Tea Party Washington
Given the debt downgrade, the market reaction, and the wretched economy, Tea Party Republicans need to understand that they now enjoy the upper hand. Only their policies have credibility on jobs. Proceeding with the Super Committee in the next debt limit round due for completion by the end of the year, Republicans must be aggressive in what they demand.
The Ryan budget included more than enough spending cuts to provide for sweeping, pro-growth tax reform, again as scored by CBO. The same was true of Cut, Cap and Balance. Indeed, the Ryan budget already provided for corporate tax reform reducing the federal rate to 25 percent, and individual tax reform reducing the individual rates to 25 percent for those making over $100,000 per year and to 15 percent for those making less, with generous personal exemptions exempting low and moderate income workers from any tax.
Republicans must demand no less as the price for their agreement in the next debt limit round. If President Obama and the Democrats refuse, Republicans should let the automatic cuts go into effect and take their case to the people in 2012. The cuts can be adjusted as necessary and replaced with much bigger ones after that election.