The introduction of two drastically different U.S. government budget resolutions means that the credit implications for the U.S. government remain uncertain, according to Moody’s Investors Service.
In the opening moves for the coming months’ budget negotiations, both the Budget Committee of the House of Representatives and the Senate Budget Committee introduced budget resolutions last week. The Obama administration is also required to propose a budget, likely to come in early April.
“The resolutions are radically different in their approaches to the U.S. federal budget and debt trajectories during the coming 10 years,” Moody’s senior vice president Steven Hess wrote in a report Monday. “Because the outcome of these negotiations is unclear, the credit implications for the U.S. government remain uncertain.” Moody’s rates the U.S. Aaa with negative outlook.
Hess said that adoption of either of the budgets as proposed, which is highly unlikely, would result in lower budget deficits over the next 10 years than currently projected in the Congressional Budget Office’s baseline scenario.
The proposal from the House, which has a Republican majority, reflects the party’s position. It shows nominal expenditure rising 3.2% annualizing during the next 10 years and totaling $41.5 trillion during that period. The proposal from the Senate, which has a Democratic majority, has a higher growth rate of 4.7% and total expenditure of $46.4 trillion.
In addition to the path of total expenditure, other important differences between the two resolutions include the path of revenues and reform of health-care entitlement programs.
The two proposals are slightly closer on the revenue side, although the Senate version is somewhat higher. Both budget plans show revenues growing by more than 6% annually, and the resulting 10-year averages are 18.8% of gross domestic product in the House and 19.3% in the Senate. Both are higher than the historical average of 18.1%.
As a result of these differences between expenditures and revenues, average budget deficits during the 10-year period are 0.6% in the House plan and 2.4% in the Senate.
Hess wrote that the most important single difference between the two plans is the treatment of health care spending, notably Medicaid, but other programs as well. The House’s proposal would significantly reduce such expenditures and repeal the Affordable Care Act.
“Because of the sharp differences in approach between the two budget resolutions, it remains uncertain whether the two houses of Congress can agree on a budget and send it to the president anytime soon,” Hess wrote. “Without any agreement, a debt trajectory similar to the CBO baseline with a rising trend later in the 10-year period remains a possible outcome.”
