Inching closer to the fiscal cliff

10:27 AM, Sep 24, 2012   |    comments
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GOLDEN VALLEY, Minn. - The fiscal cliff remains a worrisome factor for a spectrum of stake holders from Main Street to Wall Street.

Unless Congress and the President can agree on a compromise before year-end, the potential for a combined near 4% fiscal drag from higher taxes and spending cuts at the beginning of 2013 is appropriately being viewed as a threatening source of economic and equity market discord.

Dan Ament, Financial Advisor with Morgan Stanley Smith Barney in Wayzata, visited KARE 11 Sunrise, to discuss the 'cliff' risk.

Cliffs of Concern

What is the 'fiscal cliff'? The Budget Control Act of July 2011 established automatic cuts as the bludgeon that was supposed to force a special bipartisan committee to reach an agreement on deficit reduction of at least $1 trillion over the next decade. The committee failed. Those automatic cuts coupled with already set to expire tax cuts puts in play fiscal fall out if no action is taken to address the issue.

2013 Impact if we go over the cliff, in billions, how much of the GDP?
Bush Tax Cuts - Top two tax brackets      $55 b   GDP 0.4%
Bush Tax Cuts - Other measures            $195 b   GDP 1.3%
2% Payroll Tax Cut Expiration                 $110 b   GDP 0.7%
3.8% Medicare tax on investment income $20 b   GDP 0.1%
Sequestration (budget cuts)                     $95 b   GDP 0.6%

Kicking the can? Investors seem to expect some sort of solution or "kicking the can down the road." The investment community, while worried about failure in Washington, is not counting on such an outcome and hence disappointment would follow if the politicians cannot find common ground.

To access the MSSB report: Wealth and Taxes: Planning for Uncertain Times click:

(Copyright 2012 by KARE. All Rights Reserved.)

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