For the first time since 2011, the United States has had its credit rating downgraded by a major rating agency. It’s a worrisome sign that the investors who fund Congress’s overspending are catching on to just how irresponsible the federal government has been.
Fitch Ratings recently downgraded its rating of the United States debt from the highest rating of AAA to AA+, citing not just the recent down-to-the-wire debt ceiling negotiations but also broader, more systemic failures to address spending challenges coming down the pipe.
While the White House Press Secretary attempted to respond to Fitch’s announcement by simultaneously disagreeing that the downgrade was warranted and also blaming Republicans for it, Fitch has a point when it comes to the questionable nature of the country’s long-term fiscal outlook. While the recent Fiscal Responsibility Act (FRA) made some not-insubstantial reductions to discretionary spending levels, the real challenge remains reforming mandatory spending and entitlements.
Within a decade, spending on entitlement programs like Medicare, Medicaid, and Social Security, combined with the cost of paying interest on the debt, is set to exceed total tax revenue taken in. That means everything else will be paid for through yet more deficit spending — in other words, a lot of necessary functions of the federal government being put right on the credit card.
The further out one looks at fiscal projections, the more extreme the trend becomes. Three decades from now, these mandatory programs and interest on the debt alone are set to cost a cumulative $18.2 trillion. If federal spending numbers make your eyes glaze over, the federal government is expected to take in $4.8 trillion in total revenue this year.
And things are actually worse than they sound. Those projections are derived from the Congressional Budget Office’s (CBO) current-law baseline, which does not attempt to predict changes that are likely if not already passed into law.
For example, the individual income tax cuts passed as part of the 2017 Tax Cuts and Jobs Act (TCJA) are set to expire in 2025. While the tax cuts for wealthier taxpayers may be a subject of debate, tax cuts for middle-income households are extremely likely to be extended.
And that’s just one example. When presidential candidates start releasing their campaign platforms, take note of how many proposals would harm the long-term fiscal outlook versus those that would help. It doesn’t take Nostradamus to predict that they will be heavily biased towards the former.
With the exception of rare moments of lucidity in last-minute debt ceiling negotiations, members of Congress are incentivized to spend, not save. This, along with unpredictable economic crises that occasionally pop up, means that long-term budget projections are almost always rosier than the reality. When even the rosy prediction is terrifying, imagine how bad the reality is set to be.
Investors losing confidence in the security of American federal debt are more than just a canary in the coal mine. Advocates of ever-increasing spending have based much of their unconcern about the federal debt on the idea that low interest rates make debt a non-issue. While interest rates are already starting to rise from historic lows naturally, spooked investors will exacerbate that trend.
Taxpayers need to demand meaningful reform from their legislators — not just to the budget, but how the budget is put together in the first place. Fitch rightly notes that part of the problem is the budget process. Reforming the process will help with changing the results.
But taxpayers should take note that investors are picking up on how unsustainable our spending habits are. The time to fix things is well before the investors funding our debt run for the hills — not after.
Andrew Wilford is a senior policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax and fiscal policy research and education at all levels of government.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller.