Yesterday Moody's sent out a warning that the proposed tax compromise could cost up to $900 billion, and that the resulting increase in federal debt could hurt the US government’s credit rating. Not exactly good news for the US.
The plan agreed to by President Obama and Republican leaders last week could push up debt levels, increasing the likelihood of a negative outlook on the United States rating in the coming two years, the ratings agency said.
A negative outlook, if adopted, would make a rating cut more likely over the following 12-to-18 months.
For the United States, a loss of the top Aaa rating, reduce the appeal of U.S. Treasuries, which currently rank as among the world's safest investments.
"From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth," Moody's analyst Steven Hess said in a report sent late on Sunday.
After Obama announced his plan, Treasury prices fell sharply in volatile trade last week and yields have hit a six-month high, in part due to concerns over the effect the package will have on government debt levels.
If the bill becomes law, it will "adversely affect the federal government budget deficit and debt level," Moody's said.
