As near as I can tell, the only thing the Gang of Six has made more likely is default. It’s essentially the same deal that Eric Cantor and John Boehner rejected because it included tax increases. Maybe the increases are so vague and the abolition of the alternative minimum tax so attractive that this changes the perception among House Republicans, but I’m not sure why we should believe that. This is the group that passed the Cut, Cap and Balance Act yesterday, for a frame of reference. Indeed, John Boehner’s office said the plan “appears to fall short” of House goals.
As an aside, who was clamoring for the abolition of the AMT? The AMT’s problem has been one of design – it would dip down into the middle class and increase their tax without a patch. But the idea of the AMT is that, if rich people come up with so many deductions that they can whittle away their income to $0, they still would need to pay some tax. Why would we want to get rid of that entirely, and turn a tax return into a game of “hide the money” for Bill Gates?
Back to the politics of the Gang of Six. Again, this is the plan that was rejected. It has a few Senate Republicans on board, but it has no legislative language (and those two things are related), with less than two weeks until August 2. There’s not enough time between now and then to write the law, score it, and pass it. But now that it has been revealed, you’ll have a hundred different opinions of how to get it passed. That’s true on the Senate side, and it’s true on the House side as well. Frank Wolf and Jim Cooper (one of five Democrats who voted for Cut, Cap and Balance) want the Gang of Six plan to come up for a vote. Meanwhile, McConnell-Reid, the plan which has language, the plan which was the only game in town for a while, is getting pushback from Democrats because they have to take the political risk, and House Republicans would not.
Given the Catfood Commission II plan attached to McConnell-Reid, there are no good options. But in an extremely telling turn of events, Moody’s, the credit rating agency, has come out and stated that they would downgrade US debt EVEN IF MCCONNELL-REID PASSED.
A backup plan to raise the U.S. debt ceiling and avoid default could still lead to a negative outlook on the country’s ratings, Moody’s said on Tuesday, highlighting the plan’s failure to substantially reduce the deficit.
The back-up plan offered by Senator Mitch McConnell would avoid any immediate downgrade of the coveted U.S. triple-A rating, Moody’s analyst Steven Hess told Reuters in an interview, bringing relief to investors who fear an imminent downgrade of the coveted U.S. triple-A rating.
“But the numbers that are being discussed in terms of any possible deficit reduction coming out of this plan don’t seem to be very large,” Hess said. “Therefore, this plan might result in a negative outlook on the rating.”
A negative outlook is a sign the rating may be downgraded in 12 to 18 months.
Now there’s the Shock Doctrine in action, folks. Credit rating agencies are making value judgments on US fiscal policy at a time when bond traders are showing themselves to be wholly unconcerned with Treasury debt even BEFORE a $1.5 trillion package of reductions. The same Moody’s analyst said that the Gang of Six proposal would lead to an affirmation of the triple-A rating. The rating agencies, as much of a cause of the financial crisis as anyone, are choosing winners and losers on US policy. The markets rose on the Gang of Six News yesterday as well.
The one bright spot was Rep. Raul Grijalva’s message to the Gang of Six, saying that they had 6 and the Progressive Caucus had over 70 signers onto a bill to vote against Social Security and Medicare benefit cuts, including newest Congresswoman Janice Hahn. “We outnumber you,” Grijalva said in a press release.
UPDATE: Having Steny Hoyer come out against entitlement benefit cuts is helpful as well.