Downgrade signals need for reforms, including taxes

PBN Staff

08/14/2011

For the first time in history, the credit rating of the United States has been downgraded. Standard & Poor’s said that it had to take this measure because the debt-reduction plan passed was not sufficient in trying to correct the country’s economic situation.
S&P had warned the government back in April that a downgrade was possible unless it developed a long-term solution to reduce the debt and deficit. Politicians waited until the last day to get something passed.
So what does this mean to us in New England? It’s too early to determine the impact, but politicians will likely call for new taxes, and loan rates for students, homeowners, car buyers, and small businesses could rise. Others are saying the dollar will devalue, thereby making investment items such as retirement and college much more difficult.
Elected officials need to stop worrying about re-election and ideology and start worrying about what’s good for the country. Here are six steps to consider.
First, it’s time for tax reform to maximize revenue. This doesn’t mean simply raising taxes. The wealthiest 1 percent contributes 38 percent of the tax revenue. The top 10 percent pays around 70 percent of the taxes, and the bottom 40 percent pay little, if any.
Second, use realistic accounting for the spending problem. Only in Washington, is a reduction in forecasted spending called a program cut. Federal programs are scheduled to grow 8 percent per year. When policymakers request lowering the rate of growth, they’re hammered for trying to “gut” programs. Several “real” reduction programs are available such as Cut, Cap and Balance and The One Cent Solution, which mandates the government cut one penny from every dollar spent, for six years, to balance the budget.
Third, it’s time for a balanced budget amendment, just like 49 states have as law. The president is adding $4.1 billion per day to the national debt; mandatory structural reform is needed.
Fourth, let’s design a comprehensive energy policy that allows us to be self-reliant and to take advantage of America’s natural resources. One example, America West has significantly more oil shale than Saudi Arabia. Some say there are two trillion barrels of potential oil just sitting there underground.
Fifth, remove massive regulations that are being imposed on businesses and costing us around $1.75 trillion in hidden taxes per year. These costs are higher than what the government is bringing in from individual income taxes.
Six, repeal Obamacare. The public did not want this health care program yet it was forced upon us. Starting in January 2013, health care organizations will be forced to pay for free birth control (and other services) with no copays, no deductibles. This means higher insurance premiums.
Our economic system has been a successful model for over 200 years, but it’s being dismantled piece by piece. But don’t take my word for it; just ask Standard & Poor’s. •

Dave Costello is a political commentator, public-policy critic and management consultant.

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