STANDARD & POOR’S is hardly a perfect messenger, but the ratings agency’s decision to downgrade its rating of US securities is a serious warning to a dysfunctional Washington. Granted, other ratings agencies didn’t follow suit. The fact that S&P, on the day of its downgrade, was forced to admit a $2 trillion error in its accounting doesn’t inspire confidence, either. And because S&P’s downgrade could make it more expensive for the US Treasury to raise money, all taxpayers have an interest in scrutinizing S&P’s analysis with a critical eye.
Yet whatever the flaws in S&P’s methodology, the firm is only stating the obvious in noting that the political brinksmanship surrounding the debt ceiling took a major toll in investor confidence. To restore faith in its solvency, the United States must first restore faith in its political system. And the best way to do that is through the joint committee of 12 members of Congress, charged earlier this month with hashing out a long-term deficit-reduction strategy by November.
It was encouraging to see political leaders from both parties respond to S&P’s downgrade on Friday night by pointing to the bipartisan mission of the committee, whose members have yet to be appointed. What’s not clear, though, is whether all sides understand that any serious plan to close the deficit requires both changes to entitlements and the closing of tax loopholes.
Some Democrats see political gain in refusing any cuts to Medicare and Social Security benefits. But while those entitlements should be protected as crucial lifelines, some reductions are necessary in future benefit levels. Small changes, such as pegging cost-of-living increases in Social Security to the inflation rate, can yield major savings. Taking greater care to ensure that Medicare patients receive the most effective treatments, rather than giving carte blanche to unproven treatments, could bring about savings as well.
Republicans, meanwhile, must defy the self-appointed anti-tax crusaders who define any closing of a loophole as a tax increase. There are major inconsistencies in federal tax policy, and taking steps to make sure that special interests pay their fair share is not remotely the same as boosting taxes on everyone. The anti-tax pledges taken by so many GOP candidates are insidious. They put a populist gloss on tax breaks for industries and individuals that would never pass popular muster. Declaring that “I will never vote to raise taxes’’ sounds a lot cleaner than saying, “I will fight to preserve tax benefits for oil and gas companies with record profits.’’ But the effect is exactly the same.
S&P may have mucked up its math, but its wake-up call should be heard: Time to throw away the pledges and litmus tests and bring about a common-sense plan to reduce the deficit. President Obama, to his credit, has called for such a deal for months. Twelve senators and House members can help make it a reality - if they approach their task with diligence and without ideological blinders.