America has received a AAA credit downgrade for just the second time in our history.
Fitch Ratings blamed its Tuesday demotion to AA+ on “a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters.”
Fitch’s downgrade is a reactionary punishment for the debt-ceiling debate when the United States’ full-faith-and-credit ability to service our debt is under no threat.
What is threatened is taxpayers’ ability to keep floating the toxic government bloat ruining our country’s financial future and driving inflation to painful levels.
As a former bond analyst with Moody’s Investors Service (a Fitch competitor that still maintains a Aaa-rating for the United States — the last of the big three agencies after S&P downgraded America under President Barack Obama in 2011), I do agree with Fitch about America’s bigger-picture debt problems.
But the company’s move seems geared more toward penalizing Republicans for trying to enact modest fiscal discipline by attempting to hold the line during the debt-ceiling debacle against wasteful programs like the CARES and “Inflation Reduction” Acts.
Fitch says its downgrade comes “notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025.
The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management.”
Fitch is more concerned with punishing Republicans trying to solve a long-term debt problem than in sounding the alarm over massive spending bills a Democratic White House and previous Congress rammed through.
Despite what Fitch claims, the 2017 tax cuts are not the problem.
President Calvin Coolidge cut the highest income tax from 70% to 25%, yet tax revenues grew sharply.
The Coolidge tax cuts unleashed a massive economic boom.
Then as now, Washington’s addiction to spending is the problem.
Fitch’s move is a testament to failed tax-and-spend policies and their inability to tame inflation, curb our deficits and reduce a debt-to-gross-domestic-product ratio that Fitch tallies at 112.9% this year, well above the (still-unhealthy) pre-pandemic 2019 level of 100.1%.
This downgrade sinks the United States’ credit rating below those of Australia, Singapore, Germany and Switzerland.
As Fitch notes, US “general government debt,” including state and local government, is more than 2.5 times greater than the median 39.6% of GDP in countries with AAA ratings.
Fitch provides a further dire warning: “Over the next decade, higher interest rates and the rising debt stock will increase the interest service burden, while an aging population and rising health care costs will raise spending on the elderly absent fiscal policy reforms.”
The Congressional Budget Office “projects that interest costs will double by 2033 to 3.6% of GDP” and “the Social Security fund will be depleted by 2033 and the Hospital Insurance Trust Fund (used to pay for benefits under Medicare Part A) will be depleted by 2035 under current laws, posing additional challenges for the fiscal trajectory unless timely corrective measures are implemented.”
That’s true. Social Security is on the brink of a crisis, and America needs an intervention to keep this program available for future generations.
Unfortunately, neither party is willing to embrace sensible reforms, including slowing benefit growth, means testing for higher-income seniors, increasing the retirement age and modifying cost of living adjustments.
Obama oversaw America’s first credit downgrade.
The second happened under President Joe Biden.
This is no coincidence. Democrats are addicted to bankrupting our country.
Treasury Secretary Janet Yellen hit Fitch’s move as “arbitrary and based on outdated data,” yet as The Wall Street Journal observes, “Her own department on Monday increased the government’s expected borrowing from July to September to $1 trillion from $733 billion. That’s for three months.”
The Green New Deal electric-vehicle subsidies stuffed into Democrats’ Inflation Reduction Act were projected to cost $14 billion, but Goldman Sachs predicts they’ll cost $393 billion since the subsidies don’t expire.
Goldman estimates this bill’s climate-related spending will hit $1.2 trillion — triple the Congressional Budget Office’s estimate.
Interest on the debt this year is expected to be $663 billion, which the Peter G. Peterson Foundation notes is $188 billion more than all corporate-tax revenue.
Even if Democrats try to squeeze more companies dry, this will only kill the goose that lays the golden egg.
Washington must start cutting spending — now.
Carrie Sheffield is a senior policy analyst at Independent Women’s Voice and Tony Blankley Fellow for American Exceptionalism at The Steamboat Institute.