Deficit-reduction measures presented by the leaders of a Congressional commission would support the country’s Aaa rating but implementation of the full plan looks unlikely, Moody’s said on Monday.
The two co-chairman of the commission, created by President Barack Obama in February, called for measures aimed at slashing the U.S. deficit by $4 trillion by 2020. The plan includes cutting discretionary spending, eliminating tax breaks, and raising the Social Security retirement age, among others.
It’s unclear how much political support the plan, which was presented last week and still needs to be reviewed by the 16-member commission, would muster in Congress — where Republicans oppose tax increases and Democrats chafe at the idea of altering Social Security.
“If all these proposals are accepted, the fiscal path outlined would be credit positive, but the likelihood of across-the-board adoption appears low,” Steve Hess, Moody’s lead sovereign analyst for the United States, said in a report. “The challenge for the commission is to make tradeoffs so that the recommendations will still point to a path of reduced deficits and debt ratios.”
Unlike other Aaa-rated economies such as the UK and Germany, the United States still does not have a plan to stabilize or reverse the trajectory of increased indebtedness.
Without the measures, by 2015 the U.S. budget deficit will be at 4 percent of GDP, and the country’s debt-to-GDP ratio will reach 74 percent from the current 62 percent level, according to government estimates. Further deterioration is expected after 2015.
Under the commission’s draft plan, the federal budget deficit would fall to 2.2 percent by 2015. The debt-to-GDP ratio would stabilize by 2014 and decline continuously thereafter.
“From a credit perspective, we have said for some time that measures to stabilize and ultimately reduce the debt trajectory would be desirable since continuous increases would eventually put pressure on the Aaa rating,” Hess said.
