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- By Diane Alter, Contributing Writer, Money Morning
- December 21, 2012
After a lot of talk from Washington this week, we could actually be farther away from a fiscal cliff deal than we were before.
Republican House Speaker John Boehner's "Plan B," created to avert a tumble over the fiscal cliff, failed to garner enough support Thursday night from his own party.
Boehner said before the voting that he was confident his Plan B, which proposed extending the Bush era tax cuts, would sail through.
But around 8 p.m., House Majority Leader Eric Cantor, R-VA, emerged and announced the measure wouldn't go up for a vote.
This left the country asking, "What's next for the fiscal cliff?"
Boehner later said in a statement, "The House did not take up the tax measure today because it did not have sufficient support from our members to pass. Now it is up to the president to work with Senator (Harry) Reid to avert the fiscal cliff."
Equity markets reacted by tumbling on the open Friday. A majority of market participants had been optimistic until now, hopeful that a fiscal cliff deal would be reached and a recession in 2013 avoided.
But just 10 days remain before America faces the largest tax increase in history, coupled with steep
automatic spending cuts, the outlook for next year has dimmed.
With Congress on recess for the Christmas holiday and no fiscal cliff deal in sight, investors are worried and rightly so.
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Why Recession 2013 Could Hit Regardless of Fiscal Cliff Deal
- By Diane Alter, Contributing Writer, Money Morning
- December 20, 2012
Stalled fiscal cliff negotiations have fueled concerns the U.S. could face a recession in 2013 if the country fails to avert the cliff.
But recession 2013 may be on the way regardless of what happens with the fiscal cliff talks.
The latest sign of an economic downturn came Tuesday in a U.S. Commerce Department report showing imports to the United States have fallen two consecutive months after dropping 8.4% in the third quarter and 2% the previous quarter.
Robert Brusca, chief economist at FAO Economics, told MarketWatch when the economy weakens, imports decline quickly.
Brusca called the latest figures a "red flag" and said a 2013 recession is a "real risk."
The last time imports declined for two quarters was in 2009, at the end of a four-quarter decrease in imports during the Great Recession.
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Fiscal Cliff Deal Talks Hit Major Roadblock
- By Jeff Uscher, Contributing Writer, Money Morning
The apparent breakdown of talks between U.S. President Barack Obama and Republican House Speaker John Boehner on a fiscal cliff deal took the optimism out of the markets on Wednesday, with the Dow Jones Industrial Average falling nearly 100 points.
As the markets prepared to open for trading Thursday, U.S. stock futures were lower.
Boehner has decided to go ahead with a vote on his "Plan B," which would extend the Bush-era tax rates for all taxpayers with income of less than $1 million but would not deal with any of the automatic spending cuts that would take effect after Jan. 1.
In an effort to win support from wavering House Republicans, it has been reported that a companion bill could be brought to the floor with Plan B. The bill would prevent across-the-board cuts required by the fiscal cliff from being applied to the military and other specific programs.
Assuming Boehner can round up enough votes to pass Plan B, then "the president will have a decision to make," Boehner said. "He can call on the Senate Democrats to pass that bill or he can be responsible for the largest tax increase in American history."
Senate majority leader Harry Reid, D-NV, has indicated Plan B will not pass in the Democrat-controlled Senate, and President Obama has vowed to veto the bill if it reaches his desk.
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What the Fiscal Cliff Deal Could Do to You
- Money Morning Staff reports
Depending on the deal Congress makes for the fiscal cliff, middle-class Americans could face a total average tax burden of nearly 50%.
Middle-class Americans already pay an average of 43.12% in taxes, according to the non-partisan Tax Foundation.
Money Morning Chief Investment Strategist Keith Fitz-Gerald detailed the possible increase in the tax tab, citing data from FOX Business Network's expert on consumer and personal finance, Gerri Willis.
Absent a fiscal cliff deal, the mean middle class federal tax rate would climb from 25% to 28%, as Bush-era tax cuts expire in 2013. Payroll taxes would rise from 13.3% to 15.3%.
"Keep in mind that doesn't include state income tax hikes, city or county taxes, many of which are on the rise no matter where you live, thanks to decades of poor fiscal management," Fitz-Gerald said.
Add in state taxes, which average 4.82%, and the middle-class tax burden would average a whopping 48%.
As Fitz-Gerald put it, the possible tax increases amount to "an assault on the middle class."
The Most Painful Fiscal Cliff Hit to the Middle Class
The biggest tax increase threatening individuals for the 2012 tax year is a hike in the alternative minimum tax.
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Fiscal Cliff Deal: Plan B or Plan CYA?
- Jeff Uscher, Contributing Writer
Markets were higher in Europe and the United States yesterday (Tuesday) as progress was made on a fiscal cliff deal as well as on resolving debt ceiling issues before year end.
But then Republican House Speaker John Boehner rattled everyone's cages by proposing his "Plan B," which would make permanent the Bush tax cuts for all taxpayers with annual incomes under $1 million.
"Right now we need to do something to get the president's attention," Rep. Frank Lucas, R-OK, said in an interview with Bloomberg News. Boehner's approach "might just help," he said.
Fiscal Cliff Deal: What is Plan B?
The Washington Post reported that Plan B legislation was still being drafted late Tuesday but, in addition to making the Bush tax rates permanent for incomes under $1 million, Plan B would create a permanent alternative minimum tax patch and maintain the 35% inheritance tax on estates of more than $5 million.
Plan B does not address the automatic, across the board spending cuts that will go into effect if a fiscal cliff deal fails, nor does it address the looming debt ceiling.
"I believe it's important that we protect as many American taxpayers as we can," Boehner said Tuesday. "And our Plan B would protect American taxpayers who make a million dollars or less and have all of their current rates extended."
Plan B is intended to avoid tax hikes on the vast majority of Americans and to buy time to address spending cuts and other issues in January, following the holiday recess.
Boehner plans a House vote on his Plan B on Thursday.
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Fiscal Cliff Deal: The President's Latest Counter Offer
- By Jeff Uscher, Contributing Writer, Money Morning
Equity and commodity prices rallied in Europe and Asia while the U.S. dollar and Treasury bond prices fell as U.S. President Barack Obama and Republican House Speaker John Boehner have made progress on a fiscal cliff deal.
On Friday afternoon, Speaker Boehner called the White House with an offer to raise taxes on Americans earnings more than $1 million, altering his position on no tax increases for anyone.
With that concession in hand, the president devised a counteroffer, which was presented to the Republicans late Monday. The president's new proposal reduces tax increases from $1.6 trillion over ten years to $1.2 trillion, offset by $1.2 trillion in spending cuts.
But Republicans are questioning the president's math.
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Fiscal Cliff Deal: Boehner Takes a Huge Step
- By Diane Alter, Contributing Writer, Money Morning
- December 17, 2012
U.S. House of Representatives Speaker John Boehner, lead negotiator for the Republicans, took the first step late Friday in making a fiscal cliff deal when he agreed to accept a tax hike for the wealthiest Americans (those making more than $1 million).
Boehner also agreed to a one-year increase to the debt ceiling.
In return, the GOP wants U.S. President Barack Obama to implement steep cuts to entitlement spending, including Social Security, Medicare and Medicaid.
"Boehner has now accepted the premise of higher rates. So now we're just arguing over details. I think it's a significant step," Greg Valliere, chief political strategist at Potomac Research Group told Reuters.
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How to Prepare for the Fiscal Cliff
- By Diane Alter, Contributing Writer, Money Morning
- December 13, 2012
Fiscal cliff negotiations continued Thursday, but with Republicans not budging on their staunch opposition to raising taxes, and Democrats refusing any deal that doesn't include higher taxes, hopes for a compromise by year's end have waned.
Investors are worried, and rightly so.
In fact, the Wells Fargo/Gallup Investor and Retirement Optimism Index turned in a score of -8 in November, down from double-digit positive readings in early 2012. That means investors polled are back to being as pessimistic about the investing climate as they were a year ago when Washington was battling over the debt ceiling.
About 70% of investors polled said the fiscal cliff was already slowing the economy, and feared a deep recession would hit in 2013 if the economy fell off the cliff.
With no deal in sight, here's how investors can prepare for falling off the fiscal cliff.
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Fiscal Cliff 2013: GOP Plans Retaliation
- By Diane Alter, Contributing Writer, Money Morning
- December 12, 2012
Republicans appear to be losing the fiscal cliff 2103 fight over raising taxes on affluent Americans.
Now they're threatening to retaliate by intensifying Washington's next battle: the U.S. debt ceiling.
Sen. Lindsey Graham, R-SC, pledged Republicans, who control the U.S. House of Representatives, would put up "one hell of a fight over raising the debt ceiling" next year if U.S. President Barack Obama succeeds in getting the tax increase for wealthy Americans without a plan to reduce the national debt. The country is approaching the $16.4 trillion debt ceiling.
On CNN's "Piers Morgan Tonight" Tuesday, Graham threatened, "There will come a time in February and March where we have to raise the debt ceiling. I will not raise the debt ceiling ever again until we get significant reforms, because if we don't reform entitlement we're going to become Greece."
If the country's debt ceiling is not raised, the fallout would send shockwaves across the globe, as the United States, with the world's largest economy, would face the prospect of default. That in turn could threaten global confidence in U.S. Treasury bills should there be non-payment.
In addition, exceeding the debt ceiling could mean the U.S. government would be unable to pay its bills, including salaries of federal workers, who could go unpaid or be laid off. That could have far-reaching effects, disrupting business and reducing consumer spending at a time when the economy can ill afford either prospect.
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Tax Fight Remains Biggest Roadblock in Fiscal Cliff Deal
- By Diane Alter, Contributing Writer, Money Morning
- December 10, 2012
The fiscal cliff countdown clock tells us there is just 21 days left for Democrats and Republicans to come to some sort of deal.
With little resolved after months of back-and-forth discussions, which have recently turned into more heated exchanges, U.S. President Barack Obama has taken over the role of leading negations for his party, while Republican House of Representatives Speaker John Boehner is chief negotiator for the GOP.
The two men met for an unplanned White House meeting Sunday. Little details were made public regarding the powwow, but from duplicate statements from both sides, it doesn't appear much was accomplished.
The following messaged was delivered by White House spokesman John Earnest as well as an aide to Boehner. "This afternoon, the president and Speaker Boehner met at the White House to discuss efforts to resolve the fiscal cliff. We're not reading our details of the conversation, but the lines of communication remain open."
Statements from each side Monday made it clear core tax and spending issues remained unresolved, but both sides maintain they are waiting for details from the other side.
Democrats and Republicans are basically saying to each other, "it's your move."
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