Last Friday, the credit rating of the United States was downgraded. Moody’s, the ratings firm, announced that the U.S. government’s rising debt levels will grow further if the Trump Republican package of new tax cuts is enacted. This makes lending to the United States riskier.
(Moody’s is the third of three major credit-rating agencies to downgrade the credit rating of the United States.)
So-called “bond vigilantes” are being blamed. They’ve already been selling the U.S. government’s debt, as the Republican tax package moves through Congress. They’re expected to sell even more, driving long-term interest rates even higher to make up for the growing risk of holding U.S. debt.
Some right-wing Republicans in Congress have already used the Moody’s downgrade to justify deeper spending cuts in Medicaid, food stamps, and other social programs that lower-income Americans depend on.
But, hello? There’s a far easier way to reduce the federal debt. Just end the Trump tax cuts that mainly benefit the wealthy and big corporations — and instead raise taxes on them.
I’m old enough to remember when America’s super-rich financed the government with their tax payments. Under President Dwight Eisenhower — hardly a left-wing radical — the highest marginal tax rate was 91 percent. (Even after all tax credits and deductions were figured in, the super-rich paid way over half their top marginal incomes in taxes.)
But increasingly — since the Reagan, George W. Bush, and Trump 1 tax cuts — tax rates on the super-rich have plummeted.
So instead of financing the government with their taxes, the super-rich have been financing the U.S. government by lending it money.
(You may have heard that America’s debt is held mainly by foreigners. Wrong. Over 70 percent of it is held by Americans — and most of them are wealthy.)
So, an ever-increasing portion of the taxes from the rest of us are dedicated to paying ever-increasing interest payments on the debt — going largely to the super-rich.
This means that when the debt of the United States is downgraded because Trump Republicans are planning another big tax cut mainly benefiting the rich and big corporations, most Americans could end up paying in three different ways:
(1) They’ll pay even more interest on the growing debt — to the super-rich.
(2) They’ll pay higher interest rates on all other long-term debt (as higher rates on Treasury bonds waft through the economy, they raise borrowing costs on everything from mortgages to auto loans).
(3) The debt crisis will give Republicans even more excuse to do what they’re always wanting to do: slash safety nets. So many Americans could lose benefits they rely on, such as Medicaid and food stamps.
The so-called “bond vigilantes” are easy scapegoats. They’re not the cause of this absurdity. Nor is the growing national debt. Just follow the money. The real cause is the growing political power of the super-rich and big corporations to lower their taxes at the expense of most Americans.
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Robert Reich is a professor of public policy at Berkeley and former secretary of labor. His writings can be found at https://robertreich.substack.com/