It’s doubtful that Standard & Poor’s revision of America’s credit-rating outlook from stable to negative will be of much help to Republicans.
I’ve got a piece up at City Journal reminding fiscal observers that on state and local debt, S&P and its rivals have a long history of viewing big tax hikes as a sign of bold political leadership.
In January, after Illinois hiked personal and corporate taxes to address its budget deficit, S&P removed the Prairie State from a negative “watch” (a more serious condition than the new negative “outlook” on the U.S.).
In doing so, the raters said that “revenue measures that [the state legislature] expects will provide between $6 billion and $7 billion in recurring revenue,” plus the state’s new borrowing for pensions, had provided for “structural budget solutions” and could “provide a foundation for structural budget balance in the future.”
Ratings agencies have made similar pronouncements in the past when New York State and City have raised taxes.
Plus, almost two years ago, S&P cut its outlook on Britain’s AAA rating for the same reasons it has now cut America’s: debt and deficits.
Britain’s incoming Conservative leadership seized on this “market” conclusion as evidence that it had to raise taxes, and quickly. The Conservative-led coalition government increased the country’s VAT earlier this year, from 17.5 to 20 percent, dampening retail sales.
Britain also went ahead last year with former prime minister Gordon Brown’s plan to hike the top personal-income tax rate to 51 percent (compared with America’s top rate of 35 percent).
Though Britain has promised spending cuts, those cuts remain mostly in the future. Yet S&P’s outlook on the UK is back to “stable.”