Moody's warns about deficit: What can Harris and Trump do?

The next US administration “must deal with the increase in the budget deficit,” he warned Moody's Ratings in a report released Tuesday.

But it doesn't matter who is elected on November 5, whether it's the former president Donald Trump o Current Vice President Kamala HarrisThe situation is serious, Moody's reported.

What happenedRemember last November, when Moody's outlook on U.S. government ratings went from stable to negative?

The decision was made after Moody's rival, Fitch Ratingscut the US sovereign credit rating from AAA to AA+. Fitch reaffirmed the US credit rating in August.

Both agencies blamed fiscal deterioration, rising interest rates, political polarization and large deficits. And today, Moody's is just as nervous (perhaps more so) about the United States' ability to manage its finances.

“The incoming administration will face a deterioration in the US fiscal outlook as declining debt affordability will gradually weaken US fiscal strength,” said Moody's analysts, led by Claire Li and William Foster“In the absence of policy measures that can curb these trends and help limit fiscal deficits, the deterioration in fiscal soundness will weigh increasingly on the US sovereign credit profile,” he wrote.

• If nothing changes, the federal government will run fiscal deficits averaging about 7% of GDP per year over the next five years.
• This figure will rise to almost 9% in 2034.
• The debt burden will reach 130% of GDP in 2034, up from 97% in 2023.
• Federal interest payments relative to income and GDP will double to about 30% and 5% in 2034, respectively, from 14.8% and 2.4% in 2023.
• The Tax Cuts and Jobs Act of 2017 (TCJA) is a major factor in the worsening fiscal outlook.
• If the Trump-era TCJA is extended, federal tax revenues will be about 1% of GDP lower per year beginning in 2026.
• Letting it expire means more revenue and a reduction in fiscal deficit projections.
• The yield on 10-year Treasury bonds will settle around 4% from 2025.

See also: Kamala Harris vows to boost 'innovative technologies' like cryptocurrencies

Why is it important?Economists have long argued that U.S. credit is at risk. A debt crisis would lead to a weakening dollar, higher borrowing costs, market volatility and inflationary pressures, they say.

It could also harm social programs and damage America's international reputation.

Moody's analysts estimate that a Harris administration would likely have a positive impact on banks. Trump's strategy would likely lead to looser regulation, creating credit risks for banks and consumer asset-backed securities.

On immigration, both candidates are expected to maintain strict policies, Moody's said. But Trump has proposed mass deportations, which could ultimately lead to higher labor costs in agriculture and construction, negatively affecting those sectors and related industries.

And on tax cuts, Harris has backed measures like repealing parts of the TCJA, which provided significant tax cuts to high-income earners. Raising the corporate tax rate from 21% to 28% could help reduce the deficit by generating more revenue for the government.

This proposal contrasts with Trump's promise to reduce the corporate tax rate to 15%.

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