Credit ratings agency Moody’s recently warned that President Barack Obama’s planned tax package could result in a negative outlook for the US’ AAA long-term credit rating.
The fiscal proposals aim to extend all of the previous administration’s income tax cuts by two years, retain unemployment insurance for 13 months, and introduce a 2% cut in the payroll tax this year. According to Moody’s, such fiscal policies might worsen the national fiscal deficit and level of public debt.
The agency does foresee prospects for additional tax revenues as the US economy recovers in the next two years following the likely passage of the policy. However, it sees such benefits being outweighed by the reduced tax collected, and higher benefits paid out by the government.
Unless accompanied by other counterbalancing measures, such as reductions to government spending, Moody’s therefore predicts a downgrading of the country’s credit outlook in the next two years.