Not Even the Moody's Downgrade Can Make Republicans Take the National Debt Seriously
Friday's announcement by Moody's and the House Budget Committee vote could have been a turning point.
In a world where federal policymakers were treating America's national debt with the seriousness it deserves, Friday might have been a crucial turning point in Washington.
First, the House Budget Committee voted down President Donald Trump's tax proposal when four Republican members of the committee broke ranks over concerns about how the bill is projected to increase the budget deficit and the debt. "This bill falls profoundly short," said Rep. Chip Roy (R–Texas), one of those four GOP members, during the committee's debate on the bill. "It does not do what we say it does with respect to deficits."
Hours later, Moody's Ratings seemingly agreed with those objections when the credit rating agency downgraded the federal government's debt—a signal to investors that buying Treasury bonds is a riskier bet than it used to be. In a statement, Moody's said that the downgrade reflected the fact that Congress and the president "have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs," and noted that "current fiscal proposals under consideration" would not do anything to reduce spending and deficits.
Indeed, the tax bill under consideration in the House will add at least $3.3 trillion to the debt over the next 10 years, according to an estimate by the Committee for a Responsible Federal Budget. That figure rises to more than $5 trillion if various temporary measures in the bill become permanent. Those figures should give any member of Congress pause, even if the federal government wasn't already on pace to add $22 trillion to the debt in the next decade and even if Moody's (and other credit rating agencies) weren't already sounding the alarm.
"Moody's downgrade must be a wake-up call for Congress," Romina Boccia, director of budget and entitlement policy at the Cato Institute, told Reason. "Issued mere hours after Congress floated adding $5 trillion in new deficits—thereby threatening to accelerate the already unsustainable $20 trillion debt increase by 25 percent between now and 2034—shows how unserious lawmakers have become about solving the federal budget crisis. This kind of fiscal recklessness, on top of already unsustainable entitlement and interest spending increases, signals to markets that the U.S. political system may no longer be capable of self-correcting."
Alas, by Sunday night, it was obvious that we don't live in a world where federal policymakers are taking this seriously.
In response to Friday's events, the Trump administration urged Republicans to stick their heads deeper in the sand. Asked about the credit rating downgrade during a Sunday appearance on Meet The Press, Treasury Secretary Scott Bessent said, "Who cares?" He also called the downgrade a "lagging indicator" that reflected poor decisions by the Biden administration.
It's true that the Biden administration made poor fiscal decisions. In that regard, it has a lot in common with the first Trump administration—which added nearly $8 trillion to the national debt in just four years—and the Obama and Bush administrations before it. As Moody's pointed out in its statement about the rating change, the federal government's worsening fiscal condition is the result of multiple presidential administrations and congresses.
Still, that's not a very good reason for making a bad situation worse, which is what the tax bill is likely to do. Blaming Biden for the obvious, negative fiscal consequences of a bill that Trump and his Republican allies are trying to pass makes no sense at all.
That bill is now closer to passing. Late Sunday night, the House Budget Committee held a second vote on the bill, and the four Republican holdouts from Friday voted "present" rather than "no"—enough to allow the bill to progress out of committee.
Republicans are, in fairness, in a difficult spot here. They have a minuscule majority in the House, and failing to extend the 2017 Trump tax cuts would mean effectively raising taxes on nearly all Americans. It appears that the easiest solution is to do what has been done so many other times this century: accept higher borrowing as a trade-off for politically expedient policymaking, and keep ignoring the warning signs.
"For those looking for a signpost to tell us when to stop adding to our national debt, they should look no further than Moody's downgrade," said Michael A. Peterson, CEO of the Peter G. Peterson Foundation, which advocates for reducing the deficit, in response to the Moody's announcement on Friday. "It's unacceptable for a great country like America to harm its own credit rating. We have plenty of options on the table to fix this, and it can be done quickly, with leadership."
He's right. This weekend was a test for the current crop of Republican leaders in Congress and the White House. Once again, they seem to have failed.
