Yet the United States is on track to accumulate an additional $22 trillion in debt over the next 10 years. This will only increase its already massive $36 trillion debt burden. This dangerous path has led to increased criticism of President Donald Trump’s far-reaching tax cuts and spending plan. The administration’s own, nonpartisan Committee for a Responsible Federal Budget calculates that, relative to current policy in 2024, these policies would contribute to more than $1 trillion of additional annual deficits by 2034.
Even as worries have already begun to mount over the nation’s fiscal wellbeing, recent events have done little but compound this anxiety. Last week Moody’s Investors Service downgraded U.S. debt one notch below perfect. They pointed at a deteriorating fiscal outlook which now imperils the economic stability long associated with American bonds. That’s because following the downgrade, 30-year U.S. bond yields increased by the most. On Monday, they blew out over a full percentage point, hitting 5% at one point, indicating investors’ fears of greater risk.
The implications of this downgrade are profound. In so doing, it underscores the administration’s increasingly dire fiscal straits. Furthermore, it calls into question the plausibility of the various tax cuts Trump has proposed. Yet some notable officials inside the Trump administration have insisted that the tax cuts won’t hurt the budget deficit. Karoline Leavitt, a spokesperson for the administration, stated, “This bill does not add to the deficit,” attempting to reassure stakeholders about the agenda’s financial impact.
Despite these assurances, many experts express skepticism. Michael Peterson, CEO of the Peter G. Peterson Foundation, noted, “Moody’s downgrade reflects concerns stemming from years of bad fiscal decisions in Washington.” He further emphasized that “with our divisive politics preventing progress, it’s no surprise that financial markets are watching — and increasingly worried.” Peterson’s remarks capture what is becoming a pervasive anxiety among global investors about the fundamental mixing of U.S. debt.
Even now, lawmakers in both parties profess a hearty interest in solving the budget deficit. This mismatch of government receipts and outlays has led to dramatic debates. This week’s downgrade increases the odds that Trump’s tax package ends up with a smaller set of net tax cuts if it ever moves. This amendment is designed to limit its overall effect on the deficit. Economic analysts and financial experts have been sounding alarms that this latest downgrade could lengthen any legislative halting. First, it might slow down or even completely tank the adoption of the tax cuts.
Amidst this backdrop, some proponents of Trump’s agenda argue that reducing waste and inefficiencies in government spending could offset potential deficits. Stephen Miran, an economic advisor, claimed that efforts to “cut waste, fraud and abuse are going to end up bringing the deficit down by almost half a point of GDP, or maybe even a little bit more than that.” Skeptics such as Callie Cox caution that “the government deficit isn’t an issue until investors perceive it to be. And they’re more and more deceiving us into believing that the big bad deficit is a huge problem.
Investors are growing increasingly aware of these risks as they assess their portfolios. The long-held view of U.S. debt as the ultimate safe investment is under threat. Growing fears over unsustainable borrowing habits are fueling this change. The market’s response to Moody’s downgrade illustrates how quickly attitudes can change regarding American bonds and Treasuries, which historically have enjoyed widespread confidence.