Is the Fiscal Deal a Solution?
The President and the Congress managed to encompass all scenarios with the Fiscal Cliff Deal that was reached on Wednesday January 2. Taxes were raised significantly; slight cuts were agreed upon; and the “can was kicked down the road” for two months on more talks on spending cuts.
There will be one dollar in cuts for every forty-one dollars in tax increase. That is a terrible idea, but it is one we will have to live with - for now. Today’s fiscal deal in Washington can be undone to some degree by a future Congress (such as the one being seated now).
There are three good things to come out of the discussions. One, the increased taxes will be applicable to households making $450,000 as opposed to the originally proposed $250,000. In addition, the dividends and capital gains tax increases are gentler than would have occurred without the bipartisan agreement.
Lastly, the dreaded Alternative Minimum Tax annual problem looks to have been successfully handled, saving a potential 20 million households from a sharply higher tax bill on 2012 income. The AMT should not be an issue in the coming years because of the pending legislation.
The most asked question today has been whether the Deal changes our outlook for 2013. No, it does not. Consumer problems are coming, and those problems will slow the entire economy down in 2013.