Downgrade Highlights Need for Entitlement Reform

The decision by Standard and Poor's to downgrade the U.S. credit rating from AAA to AA+ is no real shock to those of us who have been warning that government debt levels are unsustainable. It has been clear for quite some time that the country is heading for bankruptcy unless federal spending is reined in and our massive entitlement programs are reformed.

It is fair to point out that S&P is the same firm that maintained its AAA assessment of investment bank Lehman Brothers and insurance giant AIG up until each of those firms collapsed in 2008. It is also significant that S&P is the only ratings agency to announce a downgrade. Both Moody's and Fitch ratings firms have kept America's AAA status intact.

Whether or not the S&P downgrade is justified, some of the agency's evaluations of the debt crisis are valid. In explaining its decision, S&P cited concerns 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." They further noted that the "containment" of Medicare and other entitlements is "key to long-term fiscal sustainability" and warned that a further downgrade to AA status is possible within the next two years in the event of further economic challenges or the failure to adequately reduce spending.

However, S&P's claim that "elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden" is not entirely accurate. House Republicans have already proposed reforms to save Medicare and Medicaid while lowering the unsustainable costs of these programs. It is congressional Democrats who resist addressing entitlements, which President Obama overtly admitted when he stated on July 11 that “the vast majority of Democrats on Capitol Hill would prefer not to have to do anything on entitlements; would prefer, frankly, not to have to do anything on some of these debt and deficit problems." This comment conveniently obscures the fact that the president has also failed to go on the record with any serious plan to address entitlement spending, which makes up 60 percent of the federal budget.

The S&P action and subsequent market turmoil should provide a wake-up call for the president and his party to get serious about fiscal responsibility. Unfortunately, their preliminary reactions are not encouraging. In one of his first major speeches after the downgrade, President Obama called for three new initiatives that would add another $250 billion to the deficit.

This is the same business-as-usual thinking that created the debt crisis in the first place and that conservatives have pledged to end. The Joint Committee created by the Budget Control Act will ensure that debt reduction will be the top priority in Congress for the remainder of the legislative session, and House Republicans will not squander the opportunity. Through conservative, commonsense policies to reform entitlements, keep taxes low, and eliminate wasteful spending, we can and will remind ratings agencies and the world why the United States remains the strongest country on earth.