Standard & Poor's Should Correct Widespread Misrepresentation Of Downgrade Decision

August 08, 2011 11:46 am ET — Jamison Foser

Rep. John Boehner

When Standard & Poor's downgraded the United States' credit rating, it pointed to Republican refusal to consider revenue increases to reduce the debt as a key reason for its action:

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. [...]

[O]ur revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues.

And Standard & Poor's specifically identified the expiration of the Bush tax cuts for high-income workers as a factor that might positively affect S&P's rating:

The outlook on the long-term rating is negative. As our downside alternate fiscal scenario illustrates, a higher public debt trajectory than we currently assume could lead us to lower the long-term rating again. On the other hand, as our upside scenario highlights, if the recommendations of the Congressional Joint Select Committee on Deficit Reduction--independently or coupled with other initiatives, such as the lapsing of the 2001 and 2003 tax cuts for high earners--lead to fiscal consolidation measures beyond the minimum mandated, and we believe they are likely to slow the deterioration of the government's debt dynamics, the long-term rating could stabilize at 'AA+'.

The S&P analysis was only five pages long, but Republicans somehow managed to miss the repeated mentions of the importance of increasing revenue in order to improve the debt situation. 

House Speaker John Boehner (R-OH), for example, issued a statement declaring the S&P's downgrade to be "the latest consequence of the out-of-control spending that has taken place in Washington." Boehner managed to squeeze seven mentions of the words "spend" and "spending" into just three paragraphs, but never once mentioned revenues. Boehner's economic illiteracy got some attention back in May, but his apparent inability to comprehend S&P's clear statements about tax revenue suggest the "economic" qualifier may not be necessary.

Not that Boehner is alone: Good luck finding a Republican whose reaction to the downgrade acknowledges that Standard & Poor's based it in part on the GOP's refusal to increase revenue. Rep. Tom Latham (R-IA)? No. Rep. Steven Palazzo (R-MS)? No. Rep. Jack Kingston (R-GA)? No. Rep. Tom Price (R-GA), chair of the House Republican Policy Committee? Of course not — in fact, he specifically ruled out revenue increases in reaction to an S&P report that identified the refusal to raise revenues as a reason for the downgrade. Rep. Nan Hayworth (R-NY)? Nope. Rep. Cathy McMorris Rodgers (R-WA)? Not even close.

Nor were congressional Republicans the only people to miss S&P's repeated statements that a refusal to increase revenues is a reason for the downgrade. So did the Associated Press, which reported that the downgrade came after Congress "failed to cut enough government spending to satisfy S&P," but didn't mention the words "tax" or "revenue."

There is, of course, ample reason to be skeptical of Standard & Poor's assessment of, well, almost anything. But S&P is presumably something of an expert on the question of why S&P issued a downgrade. Given the widespread and high-profile misinterpretation of S&P's downgrade by the Speaker of the House, the Chairman of the House Republican Policy Committee, and the Associated Press, among others, Standard & Poor's should issue a clear, concise statement forcefully rebutting inaccurate suggestions that it acted solely because of "out-of-control spending."

S&P has issued such statements before. In July, the company issued a statement noting that it had not commented on various deficit proposals and concluding "Any statement to the contrary is inaccurate." In its ratings downgrade, S&P identified the refusal to raise revenues as a cause of the action — an assessment that has been widely ignored or misrepresented. A statement reiterating that conclusion and announcing that any summary of S&P's decision that ignores revenues is inaccurate would help ensure that S&P's warning is interpreted as it was intended.

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