Obama Tax Package Could Threaten US Credit Rating

by Mike Godfrey, Tax-News.com, Washington

15 December 2010

Moody’s, the credit ratings agency, has disclosed that passage through the United States Congress of President Barack Obama’s tax package could raise the possibility of a negative outlook for the country’s present top Aaa long-term credit rating.

It points out that President Obama’s fiscal proposals, which extend for two years all of the Bush income tax cuts, retain unemployment insurance for 13 months and introduce a 2% cut in the payroll tax for next year, will not improve, and probably worsen, the US fiscal deficit and its level of public debt.

While Moody’s foresees prospects for additional tax revenues as the economy shows increased growth in the next two years following the likely adoption of the package, it is predicted that those benefits will be more than offset by the reduced tax collected, and higher benefits paid by the government as a result of the proposed measures.

Unless accompanied by other counterbalancing measures, such as reductions to government spending, it therefore sees a worsening of the US’s credit outlook in the next two years, such that the US rating could be put under threat.

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