The Biden administration and leading Democrats reacted with outrage and confusion to the credit rating agency Fitch downgrading its assessment of the federal government. But this development is long overdue.
Fitch cited many factors in their analysis, including partisan polarization and standoffs over important legislation. However, the most fundamental problem cited was the rapid increase in the national debt and the inability of Congress to address long-term problems.
In fact, Congress appears on the verge of making things even worse by considering new bills to increase spending and deficits.
Both federal spending and the national debt have steadily increased over the last 20 years, regardless of which party has controlled Congress or the White House. This was especially the case from 2020 to 2022, as Washington embarked on a $7.5 trillion spending spree that began with the onset of the Covid-19 pandemic.
That spree had both short- and long-term consequences. Initially, the unprecedented volume of deficit spending was a significant factor behind the wave of inflation that began in 2021. In turn, the Federal Reserve’s actions to raise interest rates have rattled the mortgage market and increased the cost of borrowing for the federal government.
With the amount of debt subject to credit markets now at a jaw-dropping $25.7 trillion — roughly $200,000 for every household — even slight increases to interest rates have a huge effect.
Since neither Congress nor the Biden administration are anywhere near a substantive plan to reduce deficit spending or rein in long-term imbalances, it only makes sense for groups such as the Fitch agency to call out the federal government’s shaky outlook.
Incredibly, several proposals with bipartisan support in Congress would add fuel to the fire by increasing deficit spending when America can least afford it. These include a so-called “supplemental” spending package that would combine funding for disaster relief with military and humanitarian aid for Ukraine; a boost to the “Farm Bill,” a set of programs that include agriculture subsidies, food-based welfare, and conservation; and a change to Social Security that would increase benefits for certain government workers.
The combined cost of these initiatives could easily run into the hundreds of billions of dollars. The unstated assumption is that these issues are “too important” to worry about the price tag. Such short-term thinking has been a hallmark of the big government establishment in Washington, and it’s exactly what got us into this fiscal mess in the first place.
The problem is not a lack of ways to save money and offset new spending. For example, the Heritage Foundation’s Budget Blueprint website contains hundreds of policy proposals to reform major programs, eliminate waste and balance the budget within a decade.
Instead, the problem is a lack of will and an addiction to using deficit spending to get around political obstacles. Policymakers are used to not paying a political price for adding to the national debt, because the U.S. managed to avoid inflation and high interest rates before 2021.
However, the era of low-consequence federal deficits is over, and Washington must wake up to the new reality outlined by Fitch. New deficit spending would add to the surging cost of interest payments on the debt, worsen inflationary pressures and make global markets increasingly wary about the stability of federal finances.
Congress must change course immediately. That means balancing any new spending with reductions elsewhere, surveying the sprawling mess of federal programs and bureaucracies for opportunities to reduce deficits, and taking a hard look at ways to stop major programs such as Social Security and Medicare from going bankrupt.
None of this will be politically easy. However, if elected officials truly care about America, they will recognize that this is the only way to salvage the nation’s future.
David Ditch is a senior policy analyst at The Heritage Foundation’s Hermann Center for the Federal Budget.