President Donald Trump's tax cuts have blown a hole in the federal budget, pushing the deficit to its widest in six years and ballooning the national debt past an already-swollen $21 trillion.
Few economists or investors are expressing dire concern so far about the U.S. Treasury's ability to repay all that debt.
But now, according to the credit-analysis firm Moody's Investors Service, a separate threat is looming over the government's gold-plated, triple-A rating: The growing gap between rich Americans and the poor.
"Pressures from rising inequality will exacerbate already material fiscal challenges on the horizon," Moody's said Monday in a report. "Should inequality go unaddressed, social tensions will continue to rise, leading to a more fractious political landscape that increases political risk, and with it a less predictable policy environment."
U.S. government debt is considered by most traders, regulators and policymakers to be among the world's safest investments: Often, when markets reel from nervousness about rising risk, investors shift money into U.S. Treasury bonds to protect themselves from the turmoil. So major market upheaval would likely follow any serious deterioration in investors' perception of the U.S. government's ability - or willingness - to repay its debt.
The issue has taken on added significance under the Trump administration's financial policies, since the president has promised to put America first and create jobs for the working class. In reality, according to Moody's, the $1.5 trillion of tax cuts have made the rich richer, while forcing the less-wealthy to cover a bigger share of the costs of a government that's supposed to provide services for everyone.
In a phone interview, William Foster, a Moody's vice president, said that the U.S. government has ample strengths supporting its triple-A rating, including a resilient domestic economy, strong democratic institutions and a debt load that's mostly denominated in dollars. The currency factor is crucial because it means that repaying the borrowings wouldn't necessarily become more burdensome if the dollar's exchange rate plunged in global markets.
He said that the U.S. isn't likely to lose the triple-A rating in the "medium term" -- defined as the next two to five years. And it's nearly impossible, he noted, to quantify the increased odds of a downgrade as a result of wealth inequality.
"The main thing we're trying to emphasize is that this inequality dynamic in the U.S. is probably going to exacerbate that fiscal trend," Foster said.
The Trump administration has said its tax cuts will ignite such fast economic growth that business profits and household incomes will surge, ultimately generating new tax revenue and helping to balance the budget. To the president's credit, the stimulus from the tax cuts helped push down the U.S. unemployment rate last month to 3.7% the lowest in nearly five decades.
But based on the current trajectory, interest alone on the national debt will 23% of government revenue, more than triple the share currently, Moody's projects. Absent further increases in the budget deficit, that just leaves the Treasury with fewer resources to pay ongoing costs for things like services, national parks, new highways and the military.
Since the 2008 financial crisis, the median net worth of the wealthiest 10% of the population has grown, while that of the bottom 20% has decreased, Moody's said. The trend is driven by the outsourcing and offshoring of jobs to foreign countries, while many "mid-skill" laborers whose work is considered more "routine" have been displaced by robots and automation, according to the rating firm.
At the same time, the U.S. tax code has become less progressive, meaning rich people are shouldering a shrinking share of the federal government's annual outlays. College costs have surged by 50% over the past 15 years, even as a degree becomes more critical for landing a decent job, Moody's says. More students are going deeply into debt to pay tuition, leaving them in the hole for years after they embark on careers.
So what happens next? It sounds a little bit like revolt. Or, at the very least, a mild form of it, according to Moody's: As the U.S. government becomes increasingly hard-pressed to cover the bills, lower-income workers won't be too eager to bail out the country with higher tax rates. Nor are they likely to agree to steep cuts in unemployment insurance or benefits for the elderly and the poor.
"Should labor incomes remain stagnant in real terms for vast groups of the population, intensified polarization in incomes, wealth, and opportunity will likely boost popular support for redistribution," the ratings firm said.
Then there's the rich, who tend to be politically more powerful due to their ability to influence elections and elected officials with outsize campaign contributions. Despite their prosperity and privilege, rich taxpayers are unlikely to offer up their pocketbooks as the solution, according to Moody's.
"Politically empowered high-income earners will likely resist higher, more progressive taxation," Moody's said. "Greater large-donor funding for candidates and policies opposed to such initiatives would likely follow."
For officials, the likeliest path forward is also the easiest, according to Moody's: Bigger budget deficits, and a higher debt burden that will be borne by future generations.
The scenario, according to Moody's, makes those ultra-safe Treasury bonds look a little less safe. And, perhaps, a little less worthy of the triple-A rating.
"This would accelerate the deterioration of the U.S. government's balance sheet, weighing further on the sovereign credit profile," Moody's wrote. "Greater inequality tends to be associated with higher levels corruption and weaker government institutions, which undermine the overall institutional strength of a sovereign's credit profile."
Moody's rates U.S. government at "Aaa," its highest rating. The outlook for the rating is stable, meaning no change is imminent.
At this point.