America’s credit rating was downgraded on Friday, one notch from Aaa to Aa1. Moody’s Ratings rightly raised the issue of America’s unsustainable deficits and debt. However, Moody’s gets things wrong by attacking the 2017 Tax Cuts and Jobs Act and fails to account for the economic growth unleashed by that bill, and why renewing it is vital for middle-class Americans.
Moody’s is one of Wall Street’s biggest credit rating agencies and where I worked as a healthcare bond analyst between 2011 and 2013. I respect Moody’s work and am proud to have worked there. Here’s Moody correctly diagnosing America’s fiscal problems, which include nearly $37 trillion in our national debt:
Over more than a decade, US 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.
Without adjustments to taxation and spending, we expect budget flexibility to remain limited, with mandatory spending, including interest expense, projected to rise to around 78% of total spending by 2035 from about 73% in 2024.
For its part, the Trump administration rightly pointed out that America’s current troubling fiscal picture is an outcome that began long before President Trump began his second term.
“Just like Sean Duffy said with our air traffic control system, we didn’t get here in the past 100 days,” Treasury Secretary Scott Bessent told NBC News, citing the U.S. Transportation Secretary. “It’s the Biden administration and the spending that we have seen over the past four years.”
Independent Women and many of our coalition partners have long sounded the alarm for getting our fiscal house in order. Moody’s gets that part right. But here’s where the credit rating agency takes a wrong turn. Moody’s argues:
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 (excluding interest payments) deficit over the next decade.
As a result, we expect federal deficits to widen, reaching nearly 9% of GDP by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation. We anticipate that the federal debt burden will rise to about 134% of GDP by 2035, compared to 98% in 2024.
The problem with this analysis is that Moody’s appears to have underestimated the economic growth that occurred following the 2017 tax cuts, which unleashed record household wealth and incomes, and poverty declined to a record low after the tax cuts were passed in 2017. Total corporate investment rose by about 11%, and the Gross Domestic Product rose by nearly 1% as well. Similar growth could be unleashed with the renewal of the tax cuts, resulting in trillions of dollars in additional government revenue, as well as reduced poverty.
The problem with the $4 trillion deficit calculation, which is similar to the Congressional Budget Office’s (CBO) growth calculations, which Moody’s may have relied on (or at least a similar methodology), is that it undercounts the growth spurred by tax reform.
Or as the Committee to Unleash Prosperity put it more bluntly about the CBO’s growth calculations: “bean counters who were off by $1.5 trillion in scoring the 2017 Trump tax cut.”
There’s also no mention from Moody’s of the powerful deregulatory agenda of the Trump administration, which has already sparked, and will continue to spark, trillions more in economic growth as American innovation and energy revolution is unleashed.
Independent Women’s recent polling found 78% of women, 78% of Independents, 72% of 18- to 34-year-olds, and 79% of all voters say that Congress should pass legislation to extend the 2017 tax cuts so individual income taxes don’t rise beginning January 2026.
The “One, Big, Beautiful Bill” will let families earn more wages and pay less taxes. We hope Congress won’t miss a chance to relieve Americans and help small businesses with the stimulus to grow.