Fitch Sends a Warning on US Credit Rating
One of the three major credit ratings agencies warned Wednesday that a failure to raise the debt ceiling could result in a lower credit rating for the U.S.
Fitch Ratings currently assigns a AAA rating to U.S. debt, the highest level possible. However, a failure to raise the debt ceiling "may not be compatible with 'AAA' status," according to the agency.
If the U.S. cannot sell more debt after bumping up against the debt ceiling, it may not be able to make all of its interest payments on time and in full. The federal government could begin running out of cash as soon as October.
The debt ceiling is currently $19.9 trillion, and Treasury Secretary Steven Mnuchin has repeatedly urged Congress to raise the debt ceiling by September 29. A failure to do so could roil financial markets around the world, and ultimately increase the cost of servicing U.S. debt.
This is not the first time Congress has faced this problem. During an earlier debt ceiling showdown in 2011, Standard & Poor's reduced its rating on U.S. debt from its highest level to AA+. However, Fitch and Moody’s stuck with their top ratings.
Chart of the Day: Boosting Corporate Tax Revenues
The leading candidates for the Democratic presidential nomination have all proposed increasing taxes on corporations, including raising income tax rates to levels ranging from 25% to 35%, up from the current 21% imposed by the Republican tax cuts in 2017. With Bernie Sanders leading the way at $3.9 trillion, here’s how much revenue the higher proposed corporate taxes, along with additional proposed surtaxes and reduced tax breaks, would generate over a decade, according to calculations by the right-leaning Tax Foundation, highlighted Wednesday by Bloomberg News.
Chart of the Day: Discretionary Spending Droops
The federal government’s total non-defense discretionary spending – which covers everything from education and national parks to veterans’ medical care and low-income housing assistance – equals 3.2% of GDP in 2020, near historic lows going back to 1962, according to an analysis this week from the Center on Budget and Policy Priorities.
Chart of the Week: Trump Adds $4.7 Trillion in Debt
The Committee for a Responsible Federal Budget estimated this week that President Trump has now signed legislation that will add a total of $4.7 trillion to the national debt between 2017 and 2029. Tax cuts and spending increases account for similar portions of the projected increase, though if the individual tax cuts in the 2017 Republican overhaul are extended beyond their current expiration date at the end of 2025, they would add another $1 trillion in debt through 2029.
Chart of the Day: The Long Decline in Interest Rates
Are interest rates destined to move higher, increasing the cost of private and public debt? While many experts believe that higher rates are all but inevitable, historian Paul Schmelzing argues that today’s low-interest environment is consistent with a long-term trend stretching back 600 years.
The chart “shows a clear historical downtrend, with rates falling about 1% every 60 years to near zero today,” says Bloomberg’s Aaron Brown. “Rates do tend to revert to a mean, but that mean seems to be declining.”
Chart of the Day: Drug Price Plans Compared
Lawmakers are considering three separate bills that are intended to reduce the cost of prescription drugs. Here’s an overview of the proposals, from a series of charts produced by the Kaiser Family Foundation this week. An interesting detail highlighted in another chart: 88% of voters – including 92% of Democrats and 85% of Republicans – want to give the government the power to negotiate prices with drug companies.
