A AAA excuse for Obama tax hikes?

May 26, 2009

Brian Wesbury and Bob Stein of First Trust Advisors raise an interesting conjecture (bold is mine):

Back during the budget showdown of 1995, when President Clinton faced off against the new Republican Congress, then-Treasury Secretary Robert Rubin repeatedly warned that the rating agencies could put the US on review for failing to increase the debt limit. The political angle was that a review would jack up interest rates, leading the Republicans to capitulate on trying to reduce government spending. The markets, however, scoffed at Rubin, and interest rates fell during the budget “crisis.”

This time around, we wonder whether in the next couple of years President Obama will declare a fiscal emergency that only a tax hike can solve, using the threat of a rating downgrade as a way to put political pressure on his opponents. If so, we need only look at the UK, where the threat of a downgrade comes despite large tax increases already built into their budget.

5 comments

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Honestly, I believe the US is in fiscal meltdown, Obama already is the highest spending President in US History (not totally his fault). I posted this website on another blog as well, it’s a real eye opener.

http://en.wikipedia.org/wiki/US_total_cu mulative_debt_per_person

Posted by Eldon Lopes | Report as abusive

I think spending cuts will actually happen before a significant tax increase. Somewhere the “entitlements” have to stop, and probably some will be slashed. The AAA rating just won’t ring loud enough in the ears of the public, and we do the voting. The Democrats are setting themselves up for the same catastrophic collapse the Repubs are facing.

Posted by Patrick | Report as abusive

Lets see – next year it is likely that total US govt debt will be 100% of GPD (provided the economy actually grows next year). Total US obligations, including TARP, all the off balance sheet stuff with fannie and freddie and unfunded medicare and medicaid obligations, will be close to $60 trillion. S&P shouldn’t just knock off a A it should go to junk.

Obama will absolutely have to raise taxes – given the budget he put forward. There is no doubt.

But here is my guess – He won’t need Standard & Poors threat because when we don’t protect the US dollar, foreign gov’ts will continue to unload their US dollar denominated securities each Treasury auction will bring higher rates. Who will want to buy our so called “AAA” paper at todays rates? The cost of financing our debt will soar leading to a fiscal emergency only fit for a large tax increase.

The Economist was spot on when they recently wrote: “Having spent a fortune bailing out their banks, Western governments will have to pay a price in terms of higher taxes to meet the interest on that debt. In the case of countries (like Britain and America) that have trade as well as budget deficits, those higher taxes will be needed to meet the claims of foreign creditors. Given the political implications of such austerity, the temptation will be to default by stealth, by letting their currencies depreciate. Investors are increasingly alive to this danger…”

Nice blog Jim.

International online coverage (Xinhua Zhao distance): British Home Office recently released data shows that since since September 2008, leaving Britain to return to the motherland, the number of Eastern European workers doubled.

Spend, spend, spend…Solvency will soon become America’s # 1 issue placing us in the world’s bankruptcy court for restructuring, just like GM and Chrysler. Who could have ever imagined such a thing like the top two auto makers going bankrupt? But America has the “gimmees,” the “I wannits,” and the “poor mees” real bad lately. And our leaders keep handing the kiddies the cookie jar. We just cannot continue to keep spending like this on credit while unemployment is eating away at the revenues coming in folks! We must demand a ballanced, carefull, pay-as-you-go approach to solving our nation’s problems. And we have to let the people who will not act responcibly fail, so that they can pick themselves up by their bootstraps and learn from their mistakes. We must not feel sorry for adults who will not grow up!
Or they will never grow up!

Who is going to pay for all this magnimity?

The backsides of the stupid drowns who still go to work everyday while the users take advantage of their labor… That’s who! We conervative, hard-working folks are being outnumbered by the users who have no problems feeling entitled because they were raised on other people’s money, the “Do it for me Mommy” mentality and MTV.

Sickening! Just sickening! America is no longer the land where the industrious, independant, responcible people are rewarded for their efforts. No, Robin Hood is robbing the “rich” responcible people to reward the “poor me” folks who will not act responcibly.

My question is…how much leaway does our leadership think there is between our current net earnings weekly and the actual cost of living we tax payers face? That difference is the headroom there exists between the taxpayer being able to stay solvent themselves and the possible increase in taxes our leaders can tax us further to pay for all this warm-fuzziness. For most of us the cost of living runs pretty close to our net income… So where is there room for all our taxes to increase to pay for all this philanthropy going to come from?

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