Moody's Move Subtle, Trump Tax Reform Bill Clears Hurdle

On the evening of May 18, the House Budget Committee passed President Trump’s tax reform and spending cut bill, paving the way for a full House vote.

The bill aims to extend the tax cuts passed during Trump’s 2017 term and introduces several new exemptions, including tax exemptions for tips, overtime pay, and car loan interest. Additionally, the bill proposes reducing the corporate tax rate from 21% to 17%, expanding tax credits related to families and childcare, and significantly increasing spending on defense and border security.

Last Friday, the credit rating agency Moody’s unexpectedly downgraded the U.S. sovereign rating. In its downgrade statement, Moody’s warned that if Trump’s tax reform bill is extended, it could add approximately $4 trillion to the U.S. structural deficit over the next decade. The timing of Moody’s action is particularly sensitive, raising speculation in the market about whether it was a coincidence or deliberate. Market commentators remarked, “As everyone knows, there are no coincidences in Washington.”

U.S. Treasury Secretary Bessent dismissed Moody’s downgrade, stating that Moody’s rating is a “lagging indicator.” He emphasized that the bill will stimulate economic growth and, in the long term, help improve the U.S. fiscal situation.