Tax cuts and a slowing economy will erode America’s fiscal strength during the next decade, according to a new report from Moody’s Investor Service, the bond-rating agency. At some point, Moody’s might cut the nation’s top-tier credit rating.
None of that is happening or coming into view. The economy grew at a robust 4.2% in the second quarter, the highest level since 2014. But Moody’s Analytics predicts growth of just 2.9% for all of 2018, and 2019 as well. It will then fall to 0.9%, according to the forecasting firm. If so, economic growth under Trump would average just 2.2% per year, almost exactly the same as during President Obama’s second term.
The federal budget deficit, meanwhile, rose from 3.5% of GDP in 2017 to 3.8% in 2018. Moody’s expects it to hit 4.8% of GDP in the current fiscal and soar to 8% by 2028. The U.S. fiscal debt burden is the heaviest among nations that earn Moody’s Aaa rating, its highest.
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Corporate profits are surging--but tax revenue from businesses is going the other direction.
When the economy’s strong, as it is now, the government’s debt burden normally declines rather than spiking. That’s because businesses and individuals earn more money and therefore pay more taxes. But the Trump tax cuts have weakened revenue intake, pushing deficits up. (Where have I heard this before?)
“The United States’ fiscal strength is set to gradually decline from 2019 onward,” Moody’s Analysts wrote in the report. “A persistent widening of fiscal deficits will push the federal debt and interest burdens to historic levels, which will ultimately weigh on the sovereign credit profile.”
View photos
The gap between government spending and revenue is growing historically large.
Moody’s sees several risks from mushrooming deficits. Interest payments on the debt are likely to rise from 7% of all federal outlays in 2017, before the tax cuts, to 16% in 2028. That leaves less money for defense, roads, student loans and everything else. It also raises pressure to reform and possibly cut spending on Medicare, Medicaid and Social Security, which are headed for their own solvency problems during the next couple of decades.
But privilege can backfire, if it breeds sloppy habits and excess. Moody’s says it will “revisit” its U.S. credit rating—in other words, downgrade Uncle Sam—if “policymakers do not have the capacity to respond decisively to mitigate the country’s adverse fiscal dynamics.” Right now, they seem to have no such capacity.
https://finance.yahoo.com/news/trump-tax-cuts-putting-america-203051912.html
None of that is happening or coming into view. The economy grew at a robust 4.2% in the second quarter, the highest level since 2014. But Moody’s Analytics predicts growth of just 2.9% for all of 2018, and 2019 as well. It will then fall to 0.9%, according to the forecasting firm. If so, economic growth under Trump would average just 2.2% per year, almost exactly the same as during President Obama’s second term.
The federal budget deficit, meanwhile, rose from 3.5% of GDP in 2017 to 3.8% in 2018. Moody’s expects it to hit 4.8% of GDP in the current fiscal and soar to 8% by 2028. The U.S. fiscal debt burden is the heaviest among nations that earn Moody’s Aaa rating, its highest.
View photos
Corporate profits are surging--but tax revenue from businesses is going the other direction.
When the economy’s strong, as it is now, the government’s debt burden normally declines rather than spiking. That’s because businesses and individuals earn more money and therefore pay more taxes. But the Trump tax cuts have weakened revenue intake, pushing deficits up. (Where have I heard this before?)
“The United States’ fiscal strength is set to gradually decline from 2019 onward,” Moody’s Analysts wrote in the report. “A persistent widening of fiscal deficits will push the federal debt and interest burdens to historic levels, which will ultimately weigh on the sovereign credit profile.”
View photos
The gap between government spending and revenue is growing historically large.
Moody’s sees several risks from mushrooming deficits. Interest payments on the debt are likely to rise from 7% of all federal outlays in 2017, before the tax cuts, to 16% in 2028. That leaves less money for defense, roads, student loans and everything else. It also raises pressure to reform and possibly cut spending on Medicare, Medicaid and Social Security, which are headed for their own solvency problems during the next couple of decades.
But privilege can backfire, if it breeds sloppy habits and excess. Moody’s says it will “revisit” its U.S. credit rating—in other words, downgrade Uncle Sam—if “policymakers do not have the capacity to respond decisively to mitigate the country’s adverse fiscal dynamics.” Right now, they seem to have no such capacity.
https://finance.yahoo.com/news/trump-tax-cuts-putting-america-203051912.html
