Thursday, December 13, 2012

Investopedia: Bull Vs. Bear - A Deal For The Fiscal Cliff Won't Be Finalized Before The End Of December

Question: Is a deal for the fiscal cliff going to happen?

Bear's Response
When considering the question of the upcoming "fiscal cliff" (the expiration of various tax cuts and the simultaneous automatic cuts across a variety of federal budget items), I'm reminded of a famous quote from Winston Churchill, "Americans can always be counted on to do the right thing ... after they have exhausted all other possibilities." While I do believe Congress will have little choice but to find a compromise that undoes the growth-damaging combination of higher taxes and lower spending, it will not come until 2013.

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HelicalZz said...


There is always the future visibility of any compromise to consider. Politicians love to 'say' they voted to lower taxes. In my opinion, this is why we have things like the R&D tax credit resetting annually, so some politician can claim 4 tax lowering votes in 4 years. Also partly why we have a mandate/fine in the ACA rather than a tax/deduction (though the Supreme Court cut through that misdirection). Cynically, this could mean politicians will gain more by letting us fall over the cliff, then compromise with a vote to 'lower taxes' after the reset, than a pre-cliff compromise which would be seen as a tax increase.

Semantically ridiculous, but fits with what Churchill may have meant.


Stephen Simpson, CFA said...

Right, that's what I was basically trying to say. Going over the cliff gives both sides cover, since the bar resets (taxes go higher, spending goes down).