The next U.S. administration “must grapple with widening budget deficits,” warned Moody’s Ratings in a report published Tuesday.

But no matter who is elected on Nov. 5, whether it’s ex-President Donald Trump or current Vice President Kamala Harris, the situation is dire, Moody’s reported.

What Happened: Recall last November when Moody’s outlook on the U.S. government’s ratings went from stable to negative?

The decision came after Moody’s rival, Fitch Ratings, slashed the U.S. sovereign credit grade from AAA to AA+. Fitch reaffirmed the U.S. credit rating in August.

Both agencies blamed fiscal deterioration, escalating interest rates, political polarization and substantial deficits. And today, Moody’s is just as nervous — perhaps more so — about the U.S.’s ability to manage its finances.

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

• If nothing changes, the federal government will run fiscal deficits that average around 7% of GDP per year over the next five years.
• This will rise to nearly 9% by 2034.
• The debt burden will hover at around 130% of GDP by 2034 from 97% in 2023.
• Federal interest payments relative to revenue and GDP will double to around 30% and 5% by 2034, respectively, from 14.8% and 2.4% in 2023.
• The 2017 Tax Cuts and Jobs Act (TCJA) is a significant factor in the worsening fiscal outlook.
• If the Trump-era TCJA extends, federal tax revenue will be around 1% of GDP lower per year from 2026 onward.
• Letting it expire means more revenue and a narrowing of the fiscal deficit projections.
• The 10-year Treasury yield will settle at around 4% from 2025 onward.

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Why It Matters: Economists have long insisted that U.S. credit is at risk. A debt crisis would lead to a weaker dollar, higher borrowing costs and market volatility and inflationary pressure, they say.

It could also hurt social programs and damage the U.S.’s international reputation.

Moody’s analysts project that a Harris administration will likely positively affect banks. Trump’s approach 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 explains. But Trump has proposed mass deportations. This could ultimately lead to increased labor costs in agriculture, and construction, negatively affecting those sectors and related industries.

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

That proposal contrasts with Trump’s promise to reduce the corporate tax rate to 15%.

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