The Mexican border wall is coming. Donald Trump reiterated it again on Thursday and Republican congressional leader Paul Ryan said so again on Thursday night in an interview with Sean Hannity on Fox News. Was Ryan just being friendly and giving Hannity what he knows his viewers want to hear? Maybe. The Republicans have said before, mainly via Mitch McConnell in the Senate, that any spending and tax bills would have to be “revenue neutral”. This border wall, coupled with renewed tax and infrastructure spending could blow out the government deficit further, says ThinkMarkets chief strategist, Naeem Aslam in London.
As of 2016, federal outlays continued to outstrip tax receipts, leaving the government in deficit. Throughout his campaign, Trump vowed to lower both corporate and personal income taxes which would put an immediate strain on the current deficit and likely widen it, unless spending is somehow accounted for, Aslam says.
“The wall will likely have to be paid for by the government, which essentially puts the costs onto the tax payer, while simultaneously lowering tax rates. Unless foreign direct investment somehow plugs this gaping hole then this could put significant strain on the deficit and could ring alarm bells from rating’s agencies,” Aslam says.
Moody’s is assessing the U.S. credit rating on Friday. It is unlikely that they will make any changes to the rating. Moody’s said in September that the outcome of the election would have no impact on the U.S. credit standing but changed their tune somewhat in a January 24 report. Infrastructure spending was not mentioned as problematic. Here’s what they said a month ago: “The new administration’s choices with respect to medium-term fiscal policy will have a greater impact on the US’s credit profile than has been the case in the recent past. Policy and legislative actions to either reduce or finance the rising burden of entitlements spending will be particularly important because the cost of Social Security, Medicare, and Medicaid will rise materially in the coming years.”