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.
Although Republicans are prepared to go it alone on tax reform, President Trump suggested creating a bipartisan working group on the topic during a Wednesday meeting with senators from both parties. Some senators were open to the idea, but it doesn’t look like Republicans have much interest in slowing down the process with in-depth negotiations. “I don’t really personally see the benefit of creating additional structure. I think we’ve got all the tools we need,” said Sen. John Cornyn (R-TX), who attended the meeting, according to Politico. Democrats appear skeptical, too. Sen. Ron Wyden (D-OR) said he told Trump that the distance between what Republicans were saying about their plan and what it actually does is a serious problem.
White House officials tell USA Today’s Heidi Przybyla that President Trump will include a number of compromises to limit his tax plan’s benefits for the wealthy when he promotes the blueprint next month:
“The compromises will include ending a 23.8% preferential tax rate for hedge-fund managers, or the so-called carried interest rate, White House legislative affairs director Marc Short told USA TODAY. … Retaining parts of a state and local tax deduction that benefits many middle-class families in blue states is also an area where Trump is expecting compromise.”
Trump campaigned on raising the carried interest rate, saying its beneficiaries are “getting away with murder.” But changes to the carried interest rate may run into opposition from House Republicans, and the tweaks appear unlikely to win any Democratic support.
Former Treasury Secretary Larry Summers made his distaste for the Trump administration’s tax framework clear last week when he said Republicans were using “made-up” claims about the plan and its effects. Summers expanded his criticism on Tuesday in a blog post that took aim at the report released Monday by the Council of Economic Advisers and chair Kevin Hassett, which seeks to justify the administration’s claim that its tax plan will result in a $4,000 pay raise for the average American family.
Never one to mince words, Summers says the CEA analysis is “some combination of dishonest, incompetent and absurd.” The pay raise figure is indefensible, since “there is no peer-reviewed support for his central claim that cutting the corporate tax rate from 35 to 20 percent would raise wages by $4000 per worker.” In the end, Summers says that “if a Ph.D student submitted the CEA analysis as a term paper in public finance, I would be hard pressed to give it a passing grade.”
One of the authors cited in the CEA paper also has some concerns. Harvard Business School professor Mihir Desai tweeted Tuesday that the CEA analysis “misinterprets” a 2007 paper he co-wrote on the dynamics of the corporate tax burden. Desai’s research has found a connection between business tax cuts and wage growth, but not as large as the CEA paper claims. “Cutting corporate taxes will help wages but exaggeration only serves to undercut the reasonableness of the core argument,” Desai wrote.
National Economic Council Director Gary Cohn said Monday that tax reform has to happen this year, even if it means Congress has to stay in session longer. "I think we have a unique window in time right now, but unfortunately we keep losing days to this window,” he said. “The opportunity is now." House Speaker Paul Ryan said last week he’d keep members over Christmas if that’s what it takes. And Ryan predicted Monday that tax reform would pass the House by early next month and then get through the Senate to reach the president’s desk by the end of the year. But there are plenty of skeptics out there, given the hurdles. Issac Boltansky, an analyst at the investment bank Compass Point, told Business Insider, "The idea of getting tax reform done this year is a farcical fantasy. Lawmakers have neither the time nor the capacity to formulate and clear a tax reform package in 2017."