Tax Cuts: US Fiscal Position to Deteriorate in 2026 -Fitch
Structurally large fiscal deficits will keep the U.S.’s debt burden far above that of other ‘AA’ category sovereigns, Fitch Ratings says in a new report.
In a commentary note, Fitch said November’s Congressional midterm elections will be important for fiscal governance and policy execution.
According to Fitch, the US fiscal position will deteriorate in 2026 due to tax cuts in the One Big Beautiful Bill Act (OBBBA), although tariff revenues will offset half the OBBBA’s fiscal impact.
“We lowered our tariff revenue (net of refunds) estimate by USD150 billion for 2026 after the Supreme Court struck down International Emergency Economic Powers Act tariffs.
“We expect a general government (GG) deficit of 7.9% of GDP this year and next, pushing already high GG debt above 120% by next year in our baseline”.
Fitch said ageing-related spending pressures are increasing, with social security and Medicare trust funds projected to be depleted within a decade.
Other fiscal uncertainties include the durability and revenue yield of tariffs and President Donald Trump’s call for higher defense spending. The Iran war has increased economic uncertainties, although U.S. growth has been resilient so far.
The U.S.’s ‘AA+’/Stable rating already incorporates a long-running deterioration in governance, particularly in fiscal policymaking.
Between 2015 and 2024, the U.S. percentile rank in the World Bank’s Worldwide Governance Indicators fell to 76.8 from 84.9, dropping below the ‘AA’ median (82).
The failure to pass any appropriations bills by the September 30, 2025 deadline and more frequent and longer government shutdowns reinforce this deterioration in policymaking.
The mid-terms could provide additional checks and balances to executive powers if the Democrats gain control of one or both houses of Congress.
However, divided government could make negotiating fiscal packages more difficult and raise brinkmanship risks, including on the debt ceiling, which analysts expect to be reached in 2H27.
A large, dynamic economy, the dollar’s reserve-currency role and the depth and liquidity of U.S. capital markets are key sovereign rating strengths. Oil Prices Rise Double-Digit over Unending Peace Talks
