Moody’s has warned the United States that a potential decision by Congress to extend a comprehensive package of tax cuts and unemployment benefits could jeopardize the country’s highest credit rating.
The adoption of these provisions in Congress will increase the likelihood that the credit rating outlook will be changed to negative, Moody’s announced on Monday.„If measures are not taken to mitigate the impact of these decisions, their adoption will adversely affect U.S. borrowing and increase the likelihood of a negative outlook for the current Aaa rating of the U.S. government in the next two years“, said Moody’s analyst Steven Hess.
The threat of a change in outlook is not the same as a downgrade but could shake global financial markets and spur a sharp rise in borrowing costs for the U.S. government. The tax provisions include a two-year extension of a series of extensive tax cuts introduced in 2001 and 2003 during George W. Bush’s administration, with an expiration date of January 1, 2011, as well as an extension of unemployment benefits. The implementation of the current version of the plan is estimated to cost nearly $858 billion over a 10-year period, according to Congressional experts. (H)
