Last week’s bipartisan passage of a deal to fund the government and extend the nation’s debt limit through December may end up dashing any plans for tax reform before the end of the year.
Research from Moody’s Credit Outlook noted that while cooperation in Congress has become rare, the deal only provides for a brief resumption of standard government operations. Because Congress will have such a short time frame until it has to return to the matter of raising the debt ceiling, discussion in Washington may quickly dissolve into squabbling over that issue instead of focusing on tax reform.
“The extension of debt ceiling and government funding debates into fourth-quarter 2017 may limit Congress’ ability to pass tax reform,” wrote Moody’s analysts Sarah Carlson and Matt Kulakovskyi. “If the agreement goes through, negotiations on raising the currently binding debt ceiling will start again in only a few months,” suggesting that other items on the agenda may have to take a back seat to debt debate.
Moody’s analysis also said that any further tax cuts would “exacerbate” projected increases in government debt, thereby contributing to the already-tense political discussion.
“The agreement has no effect on our assessment of the government’s fiscal dynamics because it does not include any provisions for additional revenue or offsetting expenditure cuts to fund the proposed disaster relief spending or, more generally, affect the budget balance,” added the analysts.
“The window for policy action presented by this deal will almost certainly be insufficient to generate policy consensus on a potentially politically unpopular fiscal reform required to stabilize the debt trend.”
In a speech last month in Springfield, Missouri, President DonaldTrump urged congressional Republicans and Democrats to pass a tax reform plan that he said would boost wages and increase the money that flows into workers’ pockets.
But Republicans in Congress already face an uphill battle when it comes to tax reform: Though Trump preached tax reform as a candidate, his waning approval numbers may hamstring his efforts.