downgrade

America’s debt-addicted government just lost its triple-A credit rating from Moody’s, as it previously had from fellow rating agencies S&P and Fitch. Many in Washington shrugged the move off as minor or as unfair treatment of the Trump administration. The truth is more sobering: a flashing red signal that the United States is no longer seen as a “perfect” credit risk and that politicians should stop pretending economic growth alone can bail us out.

Yes, the mess is real, and it’s because habitual deficit financing — the very disease fiscally minded founding father Alexander Hamilton warned against — has become business as usual.

The reckoning comes as House Republicans push to extend the 2017 Trump tax cuts with a “big, beautiful bill.” If handled correctly, it’s a good idea. But while the legislation aims to avoid tax hikes, it pairs modestly pro-growth provisions with a smorgasbord of costly special-interest giveaways. Worse, it assumes we can afford yet another $3 trillion to $5 trillion in debt without serious consequences. That’s the kind of magical thinking that spurred the credit downgrade.

Starting with Hamilton, American politicians long understood the importance of fiscal policy guided by the ethos of balanced budgets, low taxes and steady debt reduction. Their vision, combined with a deep respect for contractual repayment and financial responsibility, made America a creditor nation.

Washington abandoned that honorable legacy in recent decades. U.S. national debt held by the public is racing toward $30 trillion, and the cost of servicing it is ballooning. Interest payments are now one of the fastest-growing parts of the budget — $1 trillion in 2026 — crowding out core priorities and leaving us vulnerable to economic shocks. The Congressional Budget Office warns that even modest interest-rate increases could lead to hundreds of billions of dollars in added annual costs. It’s not a theoretical problem; it’s a real, compounding threat.

Which brings us back to the downgrade. Historically, downgrades like those from S&P in 2011 or Fitch in 2023 haven’t caused immediate crises, but they do raise borrowing costs and gradually erode investor confidence. The downgrades are not the problem, but symptoms of a deeper illness: lack of credible fiscal discipline. Market participants aren’t worried because Moody’s wrote a negative report; they’re worried because what Moody’s wrote is true.

If our political class continues to ignore warnings, the market will do what rating agencies only hint at: impose real discipline through higher borrowing costs, weaker currency demand and tighter credit conditions. Already, China and other countries have reduced holdings of U.S. Treasuries from 42% in 2019 to 30% today.

Meanwhile, the tax plan so far embodies Washington’s worst habits. It makes only temporary the most important pro-growth provisions of the 2017 tax cuts — like full expensing for equipment and research and development — while rendering permanent a raft of unrelated policies catering to favored industries and constituencies. That’s not tax reform; it’s pork-barrel politics dressed up as populist economics.

Worse still, the bill’s Republican supporters in the House justify it with the fantastical claim that it’s fiscally responsible based on the notion that it will raise trillions in growth-generated revenue. Even the most optimistic models show the current bill barely moving the growth needle. The administration claims growth will be enormous once it deregulates and sells off assets, but these distinct policies take a long time to bear fruit.

What a missed opportunity. According to Tax Foundation experts, making just four cost-recovery provisions permanent — bonus depreciation, R&D expensing, full expensing for factories and reforming the business-interest limitation — would more than double the tax bill’s long-run growth benefits.

That’s where legislators should be focused. Not on tax breaks for hand-picked industries or energy credits for hand-picked technologies — on structural reforms that maximize American investment, innovation and capital formation. Even such pro-growth tax policy must be paired with real spending restraint, something we haven’t seen in earnest since the 1990s. Otherwise, any gains from better tax policy will have red ink spilled all over them.

The lesson from Moody’s, and from history, is that America cannot borrow its way to prosperity. That was Treasury Secretary Andrew Mellon’s view in the 1920s, and it remains true today. Mellon quietly prepared for debt defaults by building budget surpluses, knowing that while international repayments might fail, American citizens still had to be paid. That was back when Treasury secretaries respected taxpayers.

Now, as then, we stand at a crossroads. Will we restore Hamiltonian principles of fiscal prudence or continue down a path where downgrades become defaults and our creditors decide the terms of American fiscal policy? The next move belongs to Congress. Legislators can’t say they weren’t warned. If they fail the fiscal prudence test again, we’ll all pay the price.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University. This article was produced in collaboration with Creators Syndicate.

May 17 (UPI) — Moody’s Ratings downgraded U.S. debt, becoming the last of the three major credit rating agencies to move in that direction.

The New York-based agency downgraded government long-term issuer and senior unsecured ratings to Aa1 from Aaa this week, while also changing its outlook to negative from a previous rating of stable, Moody’s said in a media release.

“This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns,” Moody’s said in the company’s statement.

“Successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs. We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration.”

Standard & Poor’s in 2011 became the first of the three nationally recognized statistical rating organizations to lower its U.S. debt rating. It later accused the Justice Department of “retaliation” for filing a $5-billion lawsuit against the credit rating agency.

Fitch Ratings followed in 2021, dropping its American long-term foreign-currency issuer default rating from top-ranked AAA to AA+ amid a political battle over the U.S. debt ceiling. That move elicited then-Treasury Secretary Janet Yellen to blast the move at the time, calling it “unwarranted.”

Moody’s in 2023 signaled it could move in the same direction, putting U.S. banks on a negative watch list and warning of a ‘mild’ recession, and later that year lowering its outlook of U.S. debt.

The agency in November then warned of a potential downgrade.

“Over more than a decade, U.S. federal debt has risen sharply due to continuous fiscal deficits. During that time, federal spending has increased while tax cuts have reduced government revenues. As deficits and debt have grown, and interest rates have risen, interest payments on government debt have increased markedly,” Moody’s said in its statement this week.

“If the 2017 Tax Cuts and Jobs Act is extended, which is our base case, it will add around $4 trillion to the federal fiscal primary deficit over the next decade. While we recognize the U.S.’ significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics.”

The White House attempted to shift the blame to former President Joe Biden‘s administration.

“The Trump administration and Republicans are focused on fixing Biden’s mess by slashing the waste, fraud, and abuse in government and passing The One, Big, Beautiful Bill to get our house back in order,” White House spokesperson Kush Desai told reporters Friday.

“If Moody’s had any credibility, they would not have stayed silent as the fiscal disaster of the past four years unfolded.”

Moody’s said it does not expect further downgrades in the near future.

“The U.S. economy is unique among the sovereigns we rate. It combines very large scale, high average incomes, strong growth potential and a track-record of innovation that supports productivity and GDP growth. While GDP growth is likely to slow in the short term as the economy adjusts to higher tariffs, we do not expect that the US’ long-term growth will be significantly affected,” the agency said in its statement.