US credit rating: Congress has many debt plans, but will it heed warning?

A report that Standard and Poor’s has lowered its US credit outlook from “stable” to “negative” jolted the New York Stock Exchange and fueled calls for Congress and the White House to come to terms on a solution to America’s soaring debt.

While maintaining its AAA rating on US debt, the rating agency added a cautionary note due to the nation’s “rising government indebtedness” – and the prospect that Congress and the White House will not deal with it. It’s a signal that if a political deal is not reached by 2013, the US credit rating could be downgraded, triggering higher interest rates and deepening the debt crisis.

“There is a material risk that US policymakers might not reach an agreement in how to address medium- and long-term budgetary challenges by 2013,” Standard and Poor’s concluded.

In response, the White House insisted that progress is being made toward a bipartisan agreement. “We think the political process will outperform S&P expectations,” said White House press secretary Jay Carney at a briefing Monday. “The fact is when the issues are important, history shows that both sides can come together and get things done,” he added.

In fact, Washington is awash with plans to rein in deficits. Last week, President Obama called for $4 trillion in deficit reduction over 12 years. Republicans call for $4 trillion over 10 years. Although those figures may be close, the approaches are starkly different.

On Friday, the House voted on five budget plans for fiscal year 2012, each with dramatically different strategies to resolve the nation’s fiscal woes. Here are details of those five plans:

• The GOP leadership plan, developed by House Budget Committee chair Paul Ryan (R) of Wisconsin, lowered both individual and corporate tax rates and capped government spending as a percentage of gross domestic product. It also significantly overhauled Medicare and Medicaid, shifting costs to individuals and the states. It passed with no Democrat votes, 235 to 193.

• Democrats on the House budget panel, led by Rep. Chris Van Hollen of Maryland, aimed to bring the budget back toward “primary balance” by fiscal year 2018 by freezing nondefense spending for five years, ending tax breaks to oil and gas industries, and not renewing the Bush-era tax cuts. It failed 166 to 259, with no Republican votes.

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