Gokhan Ergocun
08 November 2024•Update: 08 November 2024
ISTANBUL
Additional tax cuts in the US beyond extensions of previous ones in 2017 would deepen the country's federal deficit unless counterbalanced by spending cuts, credit rating agency Fitch said Thursday.
"Republican victories in the U.S. election indicate that the upcoming Congressional debate over the Federal debt ceiling in January will likely be resolved without significant contention," the agency said in statement.
It also cited Republican candidate Donald Trump's victory in Tuesday's presidential election and his policy promises, which are now more likely to be enacted.
"Key campaign promises included levying blanket 10%-20% tariffs on imports with a higher rate of 60% for goods from China, increasing immigration restrictions and extending tax cuts introduced in the 2017 Tax Cuts and Jobs Act (TCJA), which is up for renewal in 2025," it read.
Fitch stressed that its base case fiscal forecasts already incorporated the extension of most of the TCJA tax cuts, since it downgraded the US last year to AA+/Stable, its fiscal position has weakened though growth has outperformed.
"Our expectations for a continued steady rise of the general government debt to GDP ratio to 122% in 2026 from 115% this year is around 1.5ppts higher than our baseline assumptions at the time of the downgrade," it added.
Fitch also forecast that the general government deficit will remain largely unchanged in 2025-2026 from an estimated 7.6% of gross domestic product in 2024.
It noted: "However, other tax-related promises made by Trump point to additional risk to our deficit forecast in 2025 and 2026.
"These measures and rising interest rates could also add to deficit pressures."
