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US Triple-A Credit Rating Under Threat From Soaring Welfare Costs…
By Jay | January 12, 2008
I was reading the news this morning and came across this little gem of a headline in the Financial Times: US’s triple-A credit rating ‘under threat’.
Key quote from the article:
The US is at risk of losing its top-notch triple-A credit rating within a decade unless it takes radical action to curb soaring healthcare and social security spending, Moody’s, the credit rating agency, said yesterday.
One more thing to worry about, I suppose.
But then I thought to myself, why is it “social service costs” that are considered to be the primary threat to the US’s financial rating? Haven’t we spent several hundred billion dollars on a war over the past 5 years? Haven’t we foregone billions in tax revenue due to tax cuts earlier this decade? And wasn’t the main premise of those tax cuts that they would cause the economy to boom, ultimately increasing tax revenues? Well it certainly has boomed — for certain people.
Our social safety net is the most meager in the industrialized world. Even my co-workers in India get free state medical care, which is a big reason why my company is hiring so many people in India — no healthcare insurance costs, whereas they fork out about $500 per month per employee in the US. My partner’s family in Brazil get pensions and free medical care as well. My mother’s family in Canada (she was born in Montreal) get free medical care and generous social security pensions. Their children’s college costs are almost nothing, yet with all of these “government handouts,” I haven’t heard anything about Canada’s credit rating being in jeopardy. And the strange thing is, my Canadian relatives seem to pay about the same percentage of their income in taxes as I do. Sure, they contend with a 20% sales tax, but their income taxes are significantly lower than mine. By the way, as a frugal spender, I would far prefer a high sales tax to a high income tax: under this scenario those who choose to spend their money can pay more taxes, while more of my income can go into investments.
It doesn’t make sense to me that we salary workers — who by the way spend a larger proportion of our income on taxes that fund these programs than do the poor or the rich — are implicitly considered by the author of this article to be the prime cause of US financial instability.
Reading the article more closely, I see that its thesis is based upon some press release from Moody’s, the rating agency. Well gee, I wonder why anyone would trust these people. What about all of those Moody’s Triple-A rated securitized home loan tranches went bust? And how big were the tax cuts of Moody’s executives? Probably bigger than my entire yearly salary. Bet they don’t need to worry about healthcare or retirement.
I don’t begrudge what other people have. The people who run Moody’s have their agenda and will do what they need to do. But it makes me angry that a well-respected paper like the Financial Times presents this information in such a biased way. And I see these sort of assumptions ALL THE TIME when reading the paper.
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January 12th, 2008 at 7:50 pm
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