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The United States is facing “significant” tax-and-spend challenges this year that are unlikely to be swiftly resolved by Congress, the ratings agency Fitch said Tuesday, flagging a recent “deterioration” in governance.
Congress has had frequent battles in recent years over the best way to tackle growing spending commitments, with lawmakers divided over whether to tax more, spend less, or do both at the same time.
That is unlikely to change with the return of President-elect Donald Trump, who pledged on the campaign trail to ring-fence spending on things like social security benefits while also promising to extend tax cuts due to expire at the end of the year.
The United States now faces “significant fiscal policy challenges in 2025 relating to the debt limit, appropriations, and tax cuts in the context of already large deficits and an increasing debt burden,” Fitch Ratings said in a statement.
“We believe it is unlikely that these will be resolved expeditiously because of long-standing weaknesses in the federal government’s budgetary process and a narrow Republican House majority,” it added.
Although Republicans will control both houses of Congress and the White House come inauguration day on January 20, they will hold only a razor-thin majority in the House, making it difficult to pass controversial decisions like raising the debt limit and finalizing appropriations.
“The absence of a unifying budget process and the forthcoming policy debate around additional tax cuts and spending adjustments amid a still-challenging political backdrop means that important decisions are likely to be reached on an ad hoc, issue-by-issue basis,” they continued.
The note said that the “base-case assumption” was, however, that issues would be resolved.
The situation, they added, underscores the United States’ “deterioration in governance on fiscal matters over recent years.”
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