As of Friday, the United States is no longer a member of the elite club of top-tier debtors. Credit rating agency Moody’s has delivered its verdict: the U.S. government’s credit score has been downgraded from AAA to AA1. What’s most remarkable is not the downgrade itself, but the timing.
First, a basic principle: There’s no such thing as a bad tax cut. Every dollar pried from the grip of the state and returned to the productive economy is a win for liberty. The Leviathan loses strength; the domain of freedom expands. It doesn’t matter where the state is forced to retreat, as long as it does.
Tax Cuts: Big and Beautiful
Much has been said lately about the American tax reform — Donald Trump’s so-called “Big, Beautiful Bill.” To liberty-minded ears, this alliteration sounds like a theme from Beethoven’s “Ode to Joy” — the first meaningful pushback against the ever-growing hypertrophic state. In essence, the proposed law would reduce the tax burden on corporations and households by $4.5 trillion over the next 10 years — more than Germany’s entire GDP. At the same time, federal spending would be trimmed by $2 trillion through budget cuts. (RELATED: Budget Hawks v. Tax Cutters: The Republican Dilemma)
That leaves a gap of $2.5 trillion. Trump’s team intends to close it with tariff revenue. If the U.S. government succeeds in establishing a global baseline tariff of 10 percent on exports to the U.S., the Committee for a Responsible Federal Budget estimates this could generate precisely that $2.5 trillion over the next decade. Crude as the math may be, it points in a clear direction: a downsized public sector, and a private sector set free to breathe and grow.
U.S. Industry Reboots
Let’s set aside the fact that, even now, the U.S. is aggressively cutting taxes and deregulating to rebuild its decimated industrial base. Today, manufacturing accounts for just 10 percent of GDP. But its revival — driven by repatriation of capital and production — could soon provide Washington with the fiscal space it desperately needs to tame its ballooning national debt. (RELATED: Extending Tax Cut Provisions is Key for Manufacturers)
This context also gives meaning to Trump’s recent trip to the Middle East. Ostensibly an economic charm offensive, it was also a shrewd financial maneuver. In Riyadh, Doha, and Abu Dhabi, the Trump administration secured commitments from some of the world’s largest sovereign wealth funds to invest heavily in U.S. infrastructure and tech sectors. Saudi Arabia alone pledged $600 billion, alongside a $142 billion arms deal. Qatar and the UAE also promised significant investments — not just as passive shareholders, but as geopolitically motivated allies of the United States.
This capital influx serves a dual purpose: It eases the federal government’s short-term budget constraints by financing infrastructure without adding debt. At the same time, it strengthens the geopolitical tether between authoritarian Gulf states and the U.S. economy — just as China tries to lure them into long-term dependency via its Belt and Road Initiative. (RELATED: President Trump Bonds With Saudi Arabia. Plane Not Required.)
Discord From Wall Street
But as always, events in life unfold with a grain of salt. While Trump was still in Doha, a bombshell hit New York: Moody’s downgraded U.S. sovereign debt from AAA to AA1, citing rising debt and soaring deficits. For the first time since 1949, the U.S. no longer holds a top rating from all three major rating agencies. What this means for the foundations of the world markets will be discussed elsewhere in due course.
The substance of the criticism is hard to dispute. With federal debt nearing 120 percent of GDP and growing distress in the bond market, urgent action is clearly needed. Still, one might ask why Moody’s waited so long. Fitch and Standard & Poor’s downgraded the U.S. in 2011 and 2023, respectively. And what about the Biden administration’s repeated deficits exceeding 8 percent of GDP? Were those not sufficient grounds for reassessment?
Tax Reform in Limbo
The White House responded with outrage, calling Moody’s decision politically motivated — especially since it coincided with a budget committee vote that temporarily blocked Trump’s tax bill. The vote, 16 to 21 against, fueled speculation that opposition may be forming within the GOP itself. Is this a coordinated effort to sabotage Trump’s reform ahead of the midterms?
Objections center largely on proposed cuts to Medicaid and food assistance (SNAP), which some Republicans fear could cost them reelection. With the midterms less than 18 months away, few are willing to touch politically sensitive programs.
Trump didn’t mince words: “STOP TALKING, AND GET IT DONE,” he wrote in all caps on Truth Social. The goal is to pass the bill by July 4. His warning appears to have worked: By Sunday, after intense intra-party negotiations, the House Budget Committee reversed course, approving the bill by a narrow 17-16 vote. Four Republicans flipped. A compromise appears to have been reached — most likely involving reductions to green energy subsidies. A full House vote is expected later this week.
Failure Is Not an Option
Trump’s “Big, Beautiful Bill” marks the first serious attempt by a major economy to reverse the decades-long trend of an expanding state. Step back, and you see what’s truly at stake: not just fiscal limits, but narrative dominance. Trump is challenging a vast political machine that has created powerful incentives for an ever-growing number of stakeholders to protect and expand the state’s role.
In most Western democracies, the growing public sector reflects the self-reinforcing interests of welfare recipients, subsidy-hunters, and a bloated bureaucracy. The state has become a self-replicating organism — redistributing wealth while bleeding the private sector dry. In launching this reform, Trump has entered the arena with a Hydra. In ancient myth, Heracles cut off its heads and burned the stumps to prevent regrowth. If Trump fails, bond markets may exact their own punishment, pushing unreformed states into chaos.
Let’s hope the pivot toward fiscal sanity succeeds — before it’s too late.
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