America is going to keep seeing its credit rating downgraded so long as we continue on the same ridiculous path we have been on for a generation.
Namely, spending like Democrats, taxing like Republicans — and leaving the richest people in the country paying pretty much no tax at all.
Political polarization has become so intense that you can pretty much guarantee that all conservatives will blame this downgrade from Fitch on liberals, and all liberals will blame it on conservatives. Actually, that sort of reflexive tribalism is more to blame than anything. But good luck trying to make that point on Twitter or Facebook.
First, who is really to blame? In the spirit of bipartisanship, neutrality and a facts-based analysis — this will gain no traction on social media, but I am hoping one or two people out there are still interested in facts — I went back and looked at whether deficits in recent decades had been higher under Republican or Democrat presidents. It’s not that simple, of course — Congress has more power in this regard than the president. But it was a useful starting point. Especially as both U.S. credit ratings downgrades, so far, have taken place under Democrat presidents (It happened under President Barack Obama in 2011).
To my slight surprise, it was pretty much “dishonors even.” On a crude level, using White House numbers and “constant,” inflation adjusted dollars, since Reagan average deficits under Republican presidents have been about 30% higher than those under Democrat presidents. However, there were two caveats. The first is that these numbers did not include the next two Biden budgets, which his own Office of Management and Budget forecasts will run huge deficits. The second is that a very big chunk of the “Republican” figure was accounted for by the staggering deficits run during the Covid pandemic — deficits very much the result of bipartisan policy decisions. When you adjust for those two facts, average deficits under Democrats have been about 25% higher than under Republicans.
I suggest all of you hyper partisans cut the preferred section of the above paragraph and paste it on Facebook to “prove” that “your team” is the best. Meanwhile fact-based readers may conclude, reasonably, that both parties are heavily to blame.
What isn’t in doubt is that if U.S. debts keep going up and up there will be more of these downgrades. And sooner or later they may start to be serious ones, rather than the latest nominal one.
Amazing to think that just a generation ago the federal government actually ran a surplus. Budget agreements between President Bill Clinton and a Republican Congress, coupled with an economic boom and a stock market bubble, produced a budget surplus of more than 2% of gross domestic product. Serious policymakers and wonks in Washington were giving thought to what would happen, for example to the bond market, if and when the government had paid off all its debts.
Since then federal spending has risen more than 100% in real, inflation-adjusted dollars, while taxes have risen about 40%. Deficits and skyrocketing national debts should be no surprise to anyone who can do math.
The French Revolution took place in 1789 because the national government, at the time the strongest in the world, ran out of money. I remember learning with amazement in school that the French monarchy largely excluded the richest people in the country from taxes, levying them instead on the middle classes and peasants.
The richest people in America, by far, live on vast pools of capital, not salaried income. As such they are barely taxed, if at all. Government data says that the total wealth of all U.S. households runs to $140 trillion. Some 31% of that, around $43 trillion, is owned by 1% of households and around 13%, or $18 trillion, by just 0.1% – or 130,000 households. There is nothing wrong with the rich being rich — after all, as the man says in The Godfather, “we are not communists” — but until their capital is taxed directly these downgrades will continue.