The US Fiscal Cliff – Part I
American CEO’s are taking aim at the December 31st deadline for the launch of the “US Fiscal Cliff,” the most critical national and global economic issue. Regardless of what side of the rigid political fence Americans are on, the Fiscal Cliff represents a threat to every American consumer, every American worker, every American citizen and every economy in the world.
The US has 67 days before the Bush Tax cuts expire and the short-term payroll tax reduction will expire and before a series of devastating budget cuts will go into effect. This combination of events has been designated the Fiscal Cliff for good reason. Each of these events will have serious repercussions for the biggest contributor of to the national GDP, the American consumer.
CEO’s of American companies have unified in a collective, aggressive call for swift and dramatic progress on the construction of a serious plan to significantly reduce the national debt and implement a budget and tax policy that is far-reaching and stabilizing. This pressure from CEO’s seems a call to action for the creation of a functioning environment for the good of the nation, an environment serving the benefit of the electorate not the political agenda of political parties. Congress must turn from self-serving policies to a cooperative, collaborative effort and do the right thing, regardless of political consequences.
CEOs have clout. When financial leaders like Warren Buffet, Jeff Immelt and Lloyd Blankfein call for political action, politicians must respond. These are some of the tangible repercussions if the Fiscal Cliff occurs:
- JP Morgan reports that the expiration of the 2 percent temporary payroll tax reduction will result in trimming household spending capabilities by $125 billion in 2013 alone. This will decrease an already fragile GDP growth by 0.6 percent next year.
- The expiration of the Bush Tax Cuts will drain another $600 billion in 2013.
- At a time when food prices are destined to increase due to disappointing crop production and the Department of Agriculture projects food price increases of 3.5 to 4.0 percent, a formula for crisis. These food increases will hit home in early 2013, the worst possible time.
- Add projected increases of health insurance and the math is devastating. In 2012, increased premiums costs increased an average of $2,200 per employee. In 2013, projections indicate a further increase of 6.6 percent. In the past 5 years, health insurance premiums have risen 50 percent.
- The most serious repercussion of the Fiscal Cliff is the automatic, across the board budget cuts that were passed into legislation as a contingency of the political differences surrounding the debt limit increase. These automatic cuts are called sequestration. If the cuts are imposed, $1.2 trillion over nine years. Half these cuts would come from defense but sectors like education and employment would be ravaged. The country would five into recession.
On the national election scene, sequestration has only been discussed in general terms. Politicians have been working behind the scenes to arrive at a sincere, structured plan for reducing the debt.
The consensus is that the Fiscal Cliff will be avoided in the short-term with a longer-term solution in six months. The immediate damage would be averted with the promise of a bi-partisan agreement along the lines of the $4.6 trillion debt reduction similar to the Simpson-Bowles Deficit Reduction plan that failed to reach Congress because of Republican pledges not to accept any legislation with tax increases.
American business CEOs have heard enough. The Fiscal Cliff will cause an immediate loss of millions of jobs.
The expectation is that a short-term compromise consisting of a down payment and a basic structure would be submitted during the lame duck session of Congress after the election and prior to December 31. Permanent and sweeping cuts would be put into legislation in the following 4 or 5 months.
CNBC reported that legislation along the lines of Simpson Bowles would create 2 million new jobs, solidify the USD and boost investor confidence. This is what will inspire US businesses to bring stored capital reserves into play. A Simpson Bowles type plan will without doubt cause pain throughout the middle and low income earners and some discomfort to high income earners.
The US must pay its debt and no amount of spin can change that reality or the pain that must ensue. Even with Simpson Bowles, there will be more work to do in the future.
If the Bush tax cuts expire and necessary austerity cuts to social programs are implemented, there appears an imbalance in pain distribution. Cuts to Medicaid, education and education grants, social security, Medicare and other social programs tend to hurt low income and middle income persons and families much more than high income individuals.
What the US cannot compromise upon is creating an environment where businesses and entrepreneurs understand tax policy and administrative costs. You can debate tax increase for the rich and elimination or reduction of tax deductions until the sky falls, but the reality is the solution will be painful and how the pain will be distributed is a critical concern. The strategy has to be to improve the environment for economic growth and, at the end of the day, the American consumer is the best vehicle to grow the economy. Whatever reduces the debt significantly and does not kick the can down the road more than in the short-term and adds new jobs, thus broadening the power of the consumer, is the correct ticket.
American CEO’s are taking aim at the December 31st deadline for the launch of the “US Fiscal Cliff,” the most critical national and global economic issue. Regardless of what side of the rigid political fence Americans are on, the Fiscal Cliff represents a threat to every American consumer, every American worker, every American citizen and every economy in the world.
The US has 67 days before the Bush Tax cuts expire and the short-term payroll tax reduction will expire and before a series of devastating budget cuts will go into effect. This combination of events has been designated the Fiscal Cliff for good reason. Each of these events will have serious repercussions for the biggest contributor of to the national GDP, the American consumer.
CEO’s of American companies have unified in a collective, aggressive call for swift and dramatic progress on the construction of a serious plan to significantly reduce the national debt and implement a budget and tax policy that is far-reaching and stabilizing. This pressure from CEO’s seems a call to action for the creation of a functioning environment for the good of the nation, an environment serving the benefit of the electorate not the political agenda of political parties. Congress must turn from self-serving policies to a cooperative, collaborative effort and do the right thing, regardless of political consequences.
CEOs have clout. When financial leaders like Warren Buffet, Jeff Immelt and Lloyd Blankfein call for political action, politicians must respond. These are some of the tangible repercussions if the Fiscal Cliff occurs:
- JP Morgan reports that the expiration of the 2 percent temporary payroll tax reduction will result in trimming household spending capabilities by $125 billion in 2013 alone. This will decrease an already fragile GDP growth by 0.6 percent next year.
- The expiration of the Bush Tax Cuts will drain another $600 billion in 2013.
- At a time when food prices are destined to increase due to disappointing crop production and the Department of Agriculture projects food price increases of 3.5 to 4.0 percent, a formula for crisis. These food increases will hit home in early 2013, the worst possible time.
- Add projected increases of health insurance and the math is devastating. In 2012, increased premiums costs increased an average of $2,200 per employee. In 2013, projections indicate a further increase of 6.6 percent. In the past 5 years, health insurance premiums have risen 50 percent.
- The most serious repercussion of the Fiscal Cliff is the automatic, across the board budget cuts that were passed into legislation as a contingency of the political differences surrounding the debt limit increase. These automatic cuts are called sequestration. If the cuts are imposed, $1.2 trillion over nine years. Half these cuts would come from defense but sectors like education and employment would be ravaged. The country would five into recession.
On the national election scene, sequestration has only been discussed in general terms. Politicians have been working behind the scenes to arrive at a sincere, structured plan for reducing the debt.
The consensus is that the Fiscal Cliff will be avoided in the short-term with a longer-term solution in six months. The immediate damage would be averted with the promise of a bi-partisan agreement along the lines of the $4.6 trillion debt reduction similar to the Simpson-Bowles Deficit Reduction plan that failed to reach Congress because of Republican pledges not to accept any legislation with tax increases.
American business CEOs have heard enough. The Fiscal Cliff will cause an immediate loss of millions of jobs.
The expectation is that a short-term compromise consisting of a down payment and a basic structure would be submitted during the lame duck session of Congress after the election and prior to December 31. Permanent and sweeping cuts would be put into legislation in the following 4 or 5 months.
CNBC reported that legislation along the lines of Simpson Bowles would create 2 million new jobs, solidify the USD and boost investor confidence. This is what will inspire US businesses to bring stored capital reserves into play. A Simpson Bowles type plan will without doubt cause pain throughout the middle and low income earners and some discomfort to high income earners.
The US must pay its debt and no amount of spin can change that reality or the pain that must ensue. Even with Simpson Bowles, there will be more work to do in the future.
If the Bush tax cuts expire and necessary austerity cuts to social programs are implemented, there appears an imbalance in pain distribution. Cuts to Medicaid, education and education grants, social security, Medicare and other social programs tend to hurt low income and middle income persons and families much more than high income individuals.
What the US cannot compromise upon is creating an environment where businesses and entrepreneurs understand tax policy and administrative costs. You can debate tax increase for the rich and elimination or reduction of tax deductions until the sky falls, but the reality is the solution will be painful and how the pain will be distributed is a critical concern. The strategy has to be to improve the environment for economic growth and, at the end of the day, the American consumer is the best vehicle to grow the economy. Whatever reduces the debt significantly and does not kick the can down the road more than in the short-term and adds new jobs, thus broadening the power of the consumer, is the correct ticket.
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