S&P Chief Looks at Entitlement Reform to Resolve Debt Downgrade
The United States is no longer considered among the safest financial risks in the world after Standard & Poors downgraded the U.S. credit rating, but the head of the team that made the change says entitlement reform would go a long way to restoring the country's status.
David Beers, global head of sovereign and international public finance ratings at S&P, told "Fox News Sunday" that governments and Congresses come and go, but spending on entitlements persistently drags U.S. debt further into the red.
"The key thing is, yes, entitlement reform is important because entitlements are the biggest component of spending, and the part of spending where the cost pressures are greatest," Beers said.
Beers said he faults both Congress and the Obama administration for "the difficulty of all sides in finding a consensus around fiscal policy choices," but any agreement must command the support from both political parties in order to be durable.
S&P lowered the U.S. outlook on Friday evening, saying that political gridlock has prevented the U.S. from reaching a plausible solution to getting its financial house in order. It remarked that the agreement last week to reduce the nation's debt by at least $2.1 trillion over the next 10 years "fell well short" of comprehensive reforms that some had advocated.
It added that it foresees the select congressional committee to be organized to find additional savings will likely avoid raising taxes or doing any significant entitlement reform.
"It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key
to long-term fiscal sustainability," the announcement reads.
Though the announcement noted that S&P "takes no position on the mix of spending and revenue measures that Congress and the administration might conclude is appropriate for putting the U.S.'s finances on a sustainable footing," the credit ratings group suggested that tax hikes may be necessary to reduce the overall debt burden needed to improve the long-term outlook.
Beers drew no such conclusion on Sunday, though John Chambers, managing director of S&P, told ABC's "This Week" that President Obama's fiscal commission last year "had plenty of sensible recommendations" for reducing U.S. debt. Those recommendations, which included cutting spending and increasing revenues on a 3-1 ratio, were ignored.
"It was a pity that those really weren't followed through on," Chambers said.
Rep. Paul Ryan, R-Wis., chairman of the House Budget Committee, said he's not surprised by S&P's decision since even with the select committee's recommendations, the debt will continue to climb.
Ryan added that he's willing to discuss tax reforms in a way that would promote economic growth and job creation, including addressing "special interest-driven loopholes," but qualified any reforms by adding, "if you're just raising revenues to chase ever high spending, that's not good policy."
Ryan said ultimately the U.S. has to fix its entitlement system.
"The president just created two brand new health care entitlements, expanded Medicaid, a third, and then put this new rationing board in charge of Medicare," Ryan told "Fox News Sunday." "So they're unwilling to open up and restructure these entitlements, which according to S&P are the primary drivers of this debt."
Bill Miller of Legg Mason Capital Management, who appeared with Ryan, said the markets are looking to see a "reduction in uncertainty," which means both fundamental tax reform and changes to the entitlement structure.
"Discretionary spending doesn't matter at all in this thing except that it'll be a little bit of a drag on the economy. It's pro-growth policies and fundamental entitlement reform, especially on health care, that are the key things for to our long-term fiscal health and therefore the long-term confidence in the markets toward our country," Miller said.