(CNSNews.com) – An economic analyst invited by the State Department to brief a group of foreign journalists on the U.S. economy on Election Day responded to a question from a reporter from the Egyptian newspaper Al Wafd by predicting that U.S. Treasury securities—the means by which the U.S. government finances its debt–will be downgraded again.
On Aug. 5, 2011, three days after President Obama signed legislation increasing the U.S. government debt limit by $2.4 trillion, Standard & Poors downgraded U.S. Treasury securities from its highest grade of AAA to AA+. Prior to that, U.S. government debt had always maintained the highest rating.
At Tuesday’s State Department event, the Egyptian reporter asked analyst Kathy Bostjancic, director of Macroeconomic Analysis for the nonpartisan Conference Board, what impact the so-called “fiscal cliff” facing the U.S. federal government would have on the rating of U.S. Treasury securities.
“I mean, to me, it seems the odds of us getting downgraded again are very high,” said Bostjanic.
“But I think that they [Republicans and Democrats] get around the sequestration,” Bostjanic went on to say, “and I think by consequence, because they’re not going to find an agreement on how to offset that in the budget, we’re going to get downgraded.”
The Conference Board, a global membership organization for businesses, describes itself as “an objective, independent source of economic and business knowledge with only one agenda: to help our members understand and deal with the most critical issues of our time.”
The “fiscal cliff” is the colloquialism used to describe a series of federal tax increases and spending limitations scheduled to automatically take affect at the beginning of 2013. Among the automatic tax increases, as summarized by the Congressional Research Service, are the termination of all the lower marginal income-tax rates enacted under President George W. Bush, the termination of the “patch” in the Alternative Minimum Tax that now protects about 27 million middle-class American households from having to pay a higher federal tax rate, and the 2-point cut in the 12.4 percent Social Security payroll tax that President Obama signed into law in 2010.
The automatic spending limitations include a $54.7 billion reduction in currently planned fiscal 2013 defense spending and a similar $54.7 billion reduction in currently planned fiscal 2013 non-defense spending.
The so-called “sequestration” of this $109.4 billion in fiscal 2013 federal spending was included in the Budget Control Act, which legislated the deal that President Obama and House Speaker John Boehner negotiated in August 2011 to increase the federal debt limit by $2.4 trillion. The Treasury reported last week that it now expects this $2.4 trillion increase in its borrowing authority also to be exhausted by the end of this year.
Another element of the fiscal cliff is that the fees Medicare now pays to doctors for serving Medicare patients will be automatically cut by 27 percent across the board next year.
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