The new tax reform that will lower corporate and individual tax rates in the U.S. is expected to have a minimal effect on business investments in the country, global rating agency Moody's said in a report on Thursday.
The U.S. President Donald Trump signed into law the new tax code that will lower corporate tax rate to 21 percent, from 35 percent, in order to boost the revenues and investments of American corporations.
However, Moody's said it does not expect "a meaningful boost to business investment" resulting from the new tax law due to a number of factors.
Instead, with the extra money the firms are anticipated to gain, they are likely to prioritize buying back their shares from the stock market, using that money in mergers and acquisitions, and paying down their existing debt, Moody's said.
In addition, the rating agency said that much of the tax cuts for individuals will end up going to the group of high earners in the U.S., who are less likely to make a contribution to consumption in the economy.
"This group represents 5 percent of all taxpayers. These individuals are likely to spend a relatively small portion of their tax savings on current consumption, limiting the impact on the economy," Moody's explained in the report.
Moreover, the tax cuts will lower the earnings of the U.S. federal government, create a higher budget deficit, and greater government debt.
"The law will significantly reduce the tax intake of the federal government over the coming decade, in excess of $1.5 trillion and likely closer to 1 percent of GDP on average. Consequently, we expect U.S. debt to rise faster than our baseline assumption prior to the passage of the tax law," the report said.
By Ovunc Kutlu in New York