NEW YORK (Reuters) - President Barack Obama’s budget proposal would be “marginally positive” for U.S. credit ratings in the short term, but there is “almost no chance” Congress will pass the plan as it was presented, Moody’s Investors Service said on Monday.
In the longer run, the budget proposal fails to address key structural issues such as entitlement programs, Moody’s senior analyst Steven Hess said in a report. Some of the plan’s projections also are questionable, he added.
“These uncertainties, combined with the continued, elevated levels of debt, indicate that additional measures would be required to improve the government’s finances and debt position over the long term,” Hess said in the report.
Moody’s, which has recently warned about the rising likelihood of a negative outlook on the U.S. triple-A rating, noted that the estimated budget deficit of 10.9 percent of GDP for this year represents the largest shortfall since the World War II, resulting from the extension of the tax cuts introduced by former President George W. Bush.
It is still an open question, however, whether or not the government will raise taxes for high-income earners after 2012, when the tax cuts expire, Moody’s said.
The agency also raises questions about some of the projections included in the current budget proposal, in particular for non-security discretionary spending, which is forecast to be 11 percent lower in nominal terms by 2021.
“Such an extended period of no-growth in nominal spending would be unprecedented,” Hess said. “The feasibility of such a large, prolonged declined in discretionary spending is highly questionable.”
Editing by Theodore d’Afflisio
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