“One of the world’s major credit-rating companies fired a warning shot regarding the U.S.’s worsening public finances on Friday, just as lawmakers in Washington” planned “spending more to combat the economic fallout from the coronavirus pandemic,” reports Bloomberg News.
“Fitch Ratings revised its outlook on” on America’s “credit score to negative from stable, citing a ‘deterioration in the U.S. public finances.'” America’s national debt is now skyrocketing, thanks to “the huge economic shock precipitated by the coronavirus,” and it was rising even before the pandemic, Fitch said. This rapid rise will “erode the traditional credit strengths of the U.S.”
By next year, America’s national debt will be at least 130% of the size of its economy. When certain European countries’ debt got that big, they effectively had to be bailed out.
Will this presidential election be the most important in American history?
The federal budget deficit is expected to grow rapidly this year, to at least $3.7 trillion, and Democrats want to spend even more than Republicans. Last month, House Speaker Nancy Pelosi “rejected the Trump administration’s calls to limit the next coronavirus relief package to $1 trillion, arguing that Congress will need to approve at least double that amount,” reported Politico.
Last week, Democratic leaders rejected Trump’s proposal to temporarily extend expiring unemployment benefits while Democrats and Republicans negotiate another coronavirus relief package.
Negotiations continue. But as Barron’s notes, “It isn’t yet clear when lawmakers will reach an agreement on extending stimulus,” as “the two houses of Congress continue to grapple over the size of expanded unemployment benefits and aid to state and local governments.”
The pandemic may also harm the economy by leading “to pressure for higher public spending, greater state involvement in the economy” and “redistribution of incomes,” Fitch analysts wrote. Those trends could cause inflation, they said.
One way the pandemic may lead to higher spending and greater state involvement in the economy is by shifting control of Congress and the presidency to the Democrats.
Joe Biden has proposed $3 trillion in tax hikes, reports the Wall Street Journal. For example, he would raise social security payroll taxes, income taxes, and capital gains taxes. Biden’s proposed tax increases could easily become law if Democrats take control of Congress and the presidency (as most pollsters expect).
Biden’s proposed tax increases are far more than twice the size of the $1.4 trillion in tax increases Hillary Clinton proposed in 2016.
But despite their huge size, Biden’s tax increases will not be big enough to pay for his proposed new spending. That will result in skyrocketing deficits. As Bloomberg Business Week notes, Biden “envisions trillions of dollars in new outlays to address the environment and [racial] inequality.” Biden will inherit a colossal deficit “if he becomes president — and he’ll be in no rush to pare it back,” says Bloomberg Business Week. “That’s the signal the Democratic candidate is sending after his campaign rolled out a $3.5 trillion economic program over the past month. It promises to invest in clean energy” and “start narrowing the country’s racial wealth gaps.”
Biden’s energy proposals alone will cost $2 trillion. Race-related spending will consume many billions more, although none of it involves direct reparations to black people, which aren’t funded by Biden’s plan.
Biden wants to study reparations before making any reparations payments to African-Americans. In June, Biden said he was “in favor of paying slavery reparations to African Americans and Native Americans if studies found direct cash payments to be a viable option.”
The New York Times notes that reparations could cost taxpayers “several trillion dollars.” Such reparations are unlikely to actually eliminate the racial wealth gap because many people just spend unearned windfalls rather than investing them to build wealth. Other countries that pursued reparations experienced economic harm as a result.
Reparations also appear to violate existing Supreme Court rulings restricting reverse discrimination. But those rulings may be overturned if President Biden replaces retiring Supreme Court justices with justices more sympathetic to race-based reparations.
