Decades of excessive spending, paid with debt, are hitting America’s credit rating. On Aug. 1, Fitch Ratings downgraded the United States federal government’s rating from AAA, the best, to AA+, one notch below. Fitch blamed “the expected fiscal deterioration over the next three years, a high and growing general government debt burden, the erosion of governance” and two decades of “debt standoff” over raising the debt ceiling.
The debt size has soared from $6.2 trillion in 2002 to $32.7 trillion today — five times higher.
It’s now 123% of the entire U.S. economy. That occurred under both Democratic and Republican presidents.
The worst was Republican President Donald Trump, under whom it rose from $20.2 billion in 2017 to $29.6 billion in 2021 — $9.4 billion more.
A big problem is that not just Democrats, but even Republicans won’t begin to discuss entitlement reform, as Dan Mitchell, the president of the Center for Freedom and Prosperity, told us. And things aren’t going to improve soon “if either President Biden or Trump is president after the election, as both of them are very bad on entitlement reform.”
The other presidential wannabes aren’t much better.
He pointed to Republican Gov. Ron DeSantis, who still gets blasted for bringing up reform when in the House of Representatives from 2013-19, and now shies away from it.
Fitch suggested tax increases as a remedy to the federal government’s fiscal woes. Superficially, there’s a logic to that. But the reality of how federal politicians actually operate discredits that as a viable solution.
“That just would lead to bigger government,” Mitchell warned. “Having worked on Capitol Hill and been around those people for decades, what would happen is the politicians would spend more money in anticipation of getting more revenue.”
Tax increases also would reduce U.S. competitiveness with other countries — much as California’s high taxes have led to an exodus of businesses, jobs and people. While populists on the left and right might not like it, we live in a globalized world.
The federal government’s debt payment will be $663 billion this year, according to the Congressional Budget Office, rising to $1.4 trillion in 2033. That’s money that could be spent on paving roads, fixing schools, helping the homeless or — dare we suggest it? — returned to the taxpayers who pay for everything.
Like a person who borrows more to pay for high credit-card debt, the federal government has entered a downward spiral, with no solutions in sight.
Eventually, something has to give.
Fitch’s credit downgrade might not practically mean much, but it’s a reminder that the federal government needs to get its fiscal house in order.
