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    The Boehner "Debt & Tax Hike" Plan Won't Avert a Downgrade

    FACT: If enacted, the Boehner "debt & tax hike" plan would not avert a downgrade of US government debt (which would drive up interest rates). 

    Two of the top credit rating agencies -- Moody’s and Standard & Poors (S&P) -- have made clear what it would take to maintain the AAA rating on US-issued treasury bonds. The Boehner plan -- which the House is slated to vote on tomorrow -- does not meet those criteria. Specifically, the plan fails to decrease the amount of publicly held debt as a share of our economy ("debt-to-GDP ratio"), but rather actually increases that ratio.

    Under the plan, debt would rise from 62% of GDP today to an economically burdensome 92% in 2021. 

    In order to stabilize or reduce its debt, a country needs to reduce spending so that its debt grows more slowly than its economy. To do that, the US will need, not just to commit to vague "cuts," it will have to make serious structural changes in the way it spends. It will have to ensure that the annual deficits -- currently running at a staggering 10% of GDP -- are quickly reduced to less than 3% of GDP. 

    Here's what Moody’s said in June: “A credible agreement on substantial deficit reduction would support a continued stable outlook; lack of such an agreement could prompt Moody's to change its outlook to negative on the AAA rating.”

    The Boehner Plan barely saves a pittance ($6 billion) next year and barely changes the government's long-term debt outlook.  In 10-year terms, it would pile up $23 trillion in debt, instead of the $24 trillion currently projected. 

    Currently, the federal government borrows 43 cents of every dollar it spends. The national debt has more than doubled in the past 5 years, and is projected to double again over the next 10 years. 

    President Obama has warned that we will hit the current statutory debt ceiling of $14.3 trillion on August 2nd. Then, he warns, we will default on our debts and experience an economic "Armageddon." 

    FACT: It ain't so. As we have explained here and here, there is no good reason why August 2nd needs to be "the end of the world," despite what the President claims. 

    On July 13th, Moody's got more specific in its warning: "The outlook assigned at that time [Aug. 2] to the government bond rating would very likely be changed to negative at the conclusion of the review unless substantial and credible agreement is achieved on a budget that includes long-term deficit reduction." 

    Moody's continued: "To retain a stable outlook, such an agreement should include a deficit trajectory that leads to stabilization and then decline in the ratios of federal government debt to GDP and debt to revenue beginning within the next few years."

    Likewise, on July 14th, S&P said that in order to avoid a downgrade, Congress needed to enact a plan that would, “materially improve our base case expectation for the future path of the net general government debt-to-GDP ratio.” 

    OK. They've made it clear.  Very clear.

    So what exactly would it take to our reduce debt-to-GDP ratio?

    Major, transformative changes in how we spend.

    Unfortunately, the spending “cap” portion of the Boehner plan leaves our entitlements -- which constitute 60% of our budget and are its main cost drivers by far -- essentially untouched. Hardly transformative. 

    Additionally, the credit raters are looking for clear evidence that any savings are are going to actually materialize. In other words, it won't be good enough to play the classic Washington game of back-loading the promised savings into the "out years" when they can be easily waved by a future Congress.

    FACT: Alas, the Boehner plan's savings are back-loaded in just that way. 

    What are "substantial" 10 year saving?  Both Moody’s and S&P have indicated that “substantial” means savings much higher than the $1.8 trillion promised in the Boehner plan; those savings would have to be closer to $4 trillion. 

    So why is Speaker Boehner insisting on pushing a $1.8 trillion savings plan through the House tomorrow?

    It's not at all clear that plan can become law. It is opposed by the Obama Administration, all congressional Democrats, the vast majority of fiscal conservatives (including FreedomWorks), and, increasingly, by Mr. Boehner's own GOP troops in the House. 

    Meanwhile, there is no need for the plan, since the House has already passed a debt reduction bill that WOULD meet the credit raters' criteria: The Cut Cap Balance (CCB) Act, H.R.2560, which won the backing of a solid majority of the House, passing 234 to 190.

    FACT: CCB is the only plan on the table that would actually change the way Washington spends  It is the only plan to date that:

    1) Substantially cuts spending.

    2) Creates enforceable spending caps.

    3) Requires congressional passage of a Balanced Budget Amendment to the U.S. Constitution that includes a spending limitation and a super-majority to raise taxes before the debt ceiling can be raised.

    FACT: Only the CCB Act would avert a downgrade and maintain our AAA bond rating.  ("CCB = AAA.") 

    FACT: The Democrats have not passed a budget in 817 days. 

    FACT: The House Republicans have passed not 1 but 2 serious budget plans in just the past 90 days:

     

    1. The Ryan budget
    2. The CCB Act

    So why on earth would the House need to pass a third, watered down plan that DOES NOT avert a downgrade?  

    Why, in short, are Republicans negotiating with themselves?

    Common sense would dictate that the House stick with its current, strong position -- the "Cut Cap & Balance" approach, which recent polls find has the support of 66% percent of the public -- and make the Democrats offer a plan of their own. 

    Passing the Boehner plan makes no sense if our goal is -- as it should be -- to avert a downgrade. 

    No. We need to stop this misguided "debt & tax hike" plan and stick with Cut Cap & Balance. 

    TAKE ACTION: Help us avert a downgrade! Help us stop the Boehner plan

    Dean Clancy is FreedomWorks' Legislative Counsel and Vice President, Health Care Policy.