At the 13th hour, the House passed the compromise bill that appears to have helped the U.S. avoid imminent economic disaster – from their own inability to reach a compromise before the January 1st deadline. For now, the markets appear to be cheering the reduction of some uncertainty but it’s not the all-inclusive deal that many had hoped for. Below are some of the apparent winners and losers included in the deal. Words: 765
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Laundon goes on to say, in part:
I’m glad that there aren’t many in the financial media showering credit on Washington for reaching a fiscal cliff deal one day after the actual deadline passed because most of us recognize that folks who, through their own stupid actions (or inactions as the case may be), plot their own course toward disaster don’t deserve credit when they alter said course – they just avoid looking as stupid as they could have.
Below are some of the apparent winners and losers included in the deal:
Loser: Employees – The temporary payroll tax cut first enacted as part of the 2010 stimulus is gone. Employees will now pay 2% more toward social security (6.2% total) just like they did prior to 2010. For those making $40,000 to $75,000, this will increase their taxes by $800 to $1,500 annually, all else being equal. On the flip side, these same employees should be happy that their payments help improve Social Security’s solvency projections (see below).
Winner: Social Security –Actually, it’s the social security trust fund that wins. The temporary 2% reduction mentioned above didn’t help projections for the program’s solvency. It should be on better footing with these payments coming back, assuming that unemployment doesn’t go up as a result of the broader deal.
Loser: The Wealthy – This assumes you believe those earning above $450,000 (married) are “wealthy,” which President Obama clearly does. This group will see their income tax rate rise by 4.6% to 39.6%. It also increases their dividend tax rate by 5% to 20%. This said, we have a marginal tax rate system, so income below the $450,000 threshold enjoys the lower tax rate. [Read: 2% of U.S. Households Earn $450,000; 50% Only Earn $43,000 – Exactly Where Does Your Income Put YOU?]
Winner: Dividend Stocks – The increase in the dividend tax rate is much smaller than that which could have been, and applies only to the “wealthy,” as mentioned above. This should silence all those who suggested that investors sell dividend-paying stocks ahead of a looming big increase in the dividend tax rate (we were definitely not in that bunch).
Loser: U.S. Debt-to-GDP Ratio – Congress started 2011 needing to trim around $4 trillion in spending to keep the U.S. debt-to-GDP ratio, which currently stands at around 79% (according to The Committee for a Responsible Federal Budget [CRFB]) from rising. This deal slows the projected growth rate, but doesn’t bring it anywhere closer to the 40% level we enjoyed at the beginning of the century.
Winner: The Deficit … Sort of – The CRFB projects that this deal will reduce the deficit by $650 billion over 10 years, better than the estimated $4.6 trillion increase associated with extending the entire package. The projected reduction is a start, but nowhere close to what’s needed to get the country on a path to sustainable debt-to-GDP levels. To view the CRFB’s breakdown of the fiscal cliff deal, click here.
Loser: The Debt Ceiling – The deal postpones dealing with the $110 billion in scheduled defense and domestic program spending cuts and the need to increase the country’s borrowing limit. Get ready for a new catch phrase, maybe fiscal cliff 2.0?
Winner: President Obama – With this deal Obama was able to avoid raising taxes on the middle class, and get Republicans to raise taxes on the “wealthy.”
Loser: Image of U.S. Politicians – As I stated earlier, Washington leaders hammered out a deal after the deadline to avoid a potential tragedy of their own creation. Rather than focus on what is best for the country, they appear to be more focused on preserving their jobs. This deal guarantees only that the political posturing will continue in the first half of 2013, and increases the policy uncertainty that is so exhausting to investors and business managers alike.
Winner: The Market … for now – The market enjoyed two days of triple-digit gains as this deal took shape.
The good news is that tragedy has been averted, for now.
The bad news is that the debate over our nation’s borrowing limit and spending cuts still looms. That means there is still a lot of uncertainty for investors which, in other words, means:
Expect more of the same in the first half of 2013.
Tyler Laundon, MBA
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‘Tis the annual forecasting season. Every economist with a model is publishing detailed forecasts for the U.S. and world economies for 2013. I have no model, and my degrees are in history and law but the signs now are clearer than they have been in some time: 2013-2015 should see beneficial growth of the American economy and that will translate into good results for some companies and good returns for some stocks. [Let me explain my conclusions.] Words: 902 ; Charts: 1
Visit wsj.com – HERE – to find their calculator which shows where your household income stands compared to others in the U.S.. $506,000 puts you in the top 1%; the much talked about $250,00 in the top 6%; $200,000 in the top 10% while an annual salary of $43,000 puts you in the top/bottom 50%. Where do you stand?
It’s easy to find analysts and investors who are certain that a deal [to avoid the fiscal cliff] will be reached, or at least that the can will be kicked down the road to buy more time. It’s also easy to find more pessimistic views that are based on the lack of cooperation in the past, and a deeply polarized country and political system. However, I think many are missing the point, which is that austerity is coming to America – taxes are going up and government spending will be reduced – [and. as such,] the United States is likely to face a recession and market correction in 2013, regardless of whether or not a compromise is reached over the Fiscal Cliff. Words: 970
Screams about how these top-bracket income tax and capital-gains tax increases will ruin the economy by hammering spending and eliminating the incentive to work can be seen for what they are – the whining of people who don’t want their taxes to go up [BUT, when it comes to the possible increase in the top tax on dividends they have a point – a BIG point – a VERY big point. Let me explain.] Words: 450
There has been a lot of media coverage about the United States’ debt issue these days. Why should we care? Because as U.S. citizens, we all own stock in this “company” called the United States of America (let’s say the ticker symbol is USA). We purchased this stock through the various taxes we pay every year (income tax, payroll tax, corporate tax) and we receive dividends through the various benefits we receive every year (security provided by defense budget, Medicare/Medicaid benefits, Social Security benefits, etc.). This article attempts to explain the U.S. national debt in simple layman’s terms by analyzing the United States and its debt issue as if it were a stock investment. Words: 1929; Charts: 5; Tables: 1
Many articles are being written these days that more or less scope the dire financial circumstances the U.S. is in. That being said, I had not been able to find one “analyst” – even one – who had the guts to outline the probable outcome and general hopelessness of the situation and to offer any meaningful prescription for investors to survive this coming catastrophe – until now. Words: 710
It’s the shrunken tax base, not lower tax rates, which is responsible for today’s revenue shortfall. A healthier economy and faster jobs growth would do much more to close the deficit than any amount of higher tax rates on the rich. Raising tax rates might weaken the economy further, and that would make it much more difficult to generate higher tax revenues. [The truth of the matter is that] nobody’s taxes need to be raised, and nobody’s spending needs to be cut—the U.S. economy is already on a glide path to the restoration of fiscal sanity. Washington: are you listening? Words: 1190
America is quickly approaching a catastrophic economic collapse. Before you dismiss this as hype or paranoia, take a few minutes to review the facts … The numbers don’t lie.
Warning: New evidence points toward an imminent financial collapse and the destruction of American wealth. Income, investments, retirement, and even personal safety are now at severe risk. In this new video I lay it all out for you. Words: 515
The deficits aren’t going to stop anytime soon. The debt mountain will keep growing…Obviously, the debt can’t keep growing faster than the economy forever, but the people in charge do seem determined to find out just how far they can push things….The only way for the politicians to buy time will be through price inflation, to reduce the real burden of the debt, and whether they admit it or not, inflation is what they will be praying for….[and] the Federal Reserve will hear their prayer. When will the economy reach the wall toward which it is headed? Not soon, I believe, but in the meantime there will be plenty of excitement. [Let me explain what I expect to unfold.] Words: 1833