Add to those
"I would not come up with a deal unless it's a really good deal before the end of the year. I would take it into next year if that means you're going to get a better deal," Zandi said. "I think this has to be done as a package. I don't think you can break this apart, because it's just going to create brinkmanship, angst."
Thursday's hearing comes after
Each side has complained that the other's plan is unbalanced and short on specifics, and Obama and Republican leaders have not met since last month, though the president and Boehner have spoken on the phone. But in their public remarks, Obama and other top Democrats have been adamant that there will be no deal unless Republicans concede to top marginal tax rates going up. "Until there's some movement on tax rates I'm not talking about any other proposals," Senate Majority Leader
The debate is particularly relevant for financial advisors, whose clients could face a very different investment landscape in 2013 depending upon how the government acts. In addition to the scheduled increase in marginal rates for ordinary income, the top tax rate for capital gains would increase from 15% to 20%, while dividend income would align with ordinary-income rates, for a top rate of 39.6%. (For top earners, both types of investment income would be subject to an additional 3.8%
Just as the president has objected that Republicans won't give ground on tax rates for top earners, Republicans have complained that the administration is too narrowly focused on revenues and unwilling to make needed cuts to federal spending in programs like
"It's not only likely, it would certainly do so. In fact, the dividend tax increase alone is positively cataclysmic," said
Taken together, the tax increases — or even the potential that rates may rise — have a chilling effect on corporate investment, which could ripple through the markets, Hassett warned.
"I think the threat of those increases is a very big, significant negative," he said. "The fact is that dividend taxes, capital gains taxes, statutory tax rates have a big effect on investment through the use or cost of capital. If the dividend tax is going to go up, then there are a lot of firms that are going to be hurt significantly by that, and day-to-day would be paring back their capital spending in anticipation of higher taxes in the future."
Hassett and Zandi's comments followed another week of posturing as leaders from both parties blasted the other for failing to offer a serious plan, and the
In the meantime, the showdown over the fiscal cliff is beginning to bleed into the next major fight in
Senate Minority Leader
"Look: the only way we ever cut spending around here is by using the debate over the debt limit to do it. Now the president wants to remove that spur to cut altogether. It gets in the way of his spending plans," McConnell said Thursday on the floor of the
(In a bit of political maneuvering, McConnell proposed a vote on Obama's debt ceiling plan, likely expecting Reid not to comply for fear of subjecting vulnerable Democrats to a tough vote. But when Reid offered to bring the bill to the floor on Thursday, McConnell blocked debate with a filibuster.)
There is broad agreement that the uncertainty over the spending cuts and tax-rate fluctuations involved with the fiscal cliff and the concern that
But with a
But it won't be too long into 2013 without a deal before things get serious, he warned.
"I think you could go into early February," Zandi told lawmakers. "By early February if it looks like you're not coming to a deal, and the market investors begin to discount the likelihood that you're not coming to a deal, then you'll see stock prices decline, the bond market will react, consumer and confidence will begin to erode. By mid-February it would be doing a lot of damage, and by the end of February, of course, then the debt ceiling again. You can't navigate around the debt ceiling and really bad things will happen. So I think you've got about a month."
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