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Moody’s Investors Service said in a Monday report that the tax-cut deal hammered out between President Obama and congressional Republicans jeopardizes the Aaa credit rating enjoyed by U.S. Treasury bonds. The package could add $900 billion to the national debt, if it is made permanent, and this increases the chances the U.S. would one day default on its debt.
“From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth. Unless there are offsetting measures, the package will be credit negative for the US and increase the likelihood of a negative outlook on the US government’s Aaa rating during the next two years,” Moody’s analyst Steven Hess writes.
Hess writes that the higher economic growth from the tax cuts and unemployment benefits might be substantial, but the effect of the growth on budget deficits will be less than the effect of the foregone revenue and increased spending.
He notes that the Congressional Budget Office has found that the package would raise the ratio of debt-to-gross domestic product from 61.6 percent to 68.5 percent by 2012.
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