Credit agencies know a bad risk when they see one
Robert Reich for Inequality Media
(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.
Just follow the money. The real cause is the growing political power of the super-rich and big corporations...
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.
© 2025 Robert Reich
Robert Reich is the Chancellor's Professor of Public Policy at the University of California, Berkeley, and a senior fellow at the Blum Center for Developing Economies. He served as secretary of labor in the Clinton administration, for which Time magazine named him one of the 10 most effective cabinet secretaries of the twentieth century. His book include: "Aftershock" (2011), "The Work of Nations" (1992), "Beyond Outrage" (2012) and, "Saving Capitalism" (2016). He is also a founding editor of The American Prospect magazine, former chairman of Common Cause, a member of the American Academy of Arts and Sciences, and co-creator of the award-winning documentary, "Inequality For All." Reich's newest book is "The Common Good" (2019). He's co-creator of the Netflix original documentary "Saving Capitalism," which is streaming now.
