As you must know, unless you live under a rock, the United States is headed for a “fiscal cliff.”
If Congress does nothing and the United States plunges off the “fiscal cliff” in three months, taxes would rise for 90 percent of Americans due to automatic increases in income and payroll taxes and other financial shocks, said a report issued on Monday.
In the latest forecast of trouble ahead if Capitol Hill cannot overcome its fiscal paralysis, the Tax Policy Center, a Washington think tank, predicted taxes would rise by $500 billion in 2013, or an average of almost $3,500 per household.
Three months is not a lot of time!
So what does Obama plan to do about it if he gets a second term? Not much. Timothy Geithner says he wants to resign and move on before the President has to deal with the issue. Obama has said he will “move quickly” to replace Geithner, but it is hard to know how much difference that would make. There is no reason to think that a better Treasury Secretary can solve the problems.
If Congress remains in Republican hands (quite likely) and Obama wins a second term, is Obama likely to work with Congress to give the US a soft landing?
What many in the market worry about isn’t that high earners may pay more in taxes if Obama wins. It’s gridlock in Washington come January, when more than $600 billion in spending cuts and tax increases could kick in just as the country smacks into its borrowing limit again.
In a second term, Obama would probably be pitted against a Republican-controlled House of Representatives. Investors say that’s likely to set up a budget battle similar to August of last year, which ended with the country losing its top credit rating and panicked investors fleeing the stock market.
“If you have any kind of gridlock, you run the risk of inaction,” says Tom Simons, a market economist at the investment bank Jefferies. “This is a situation where inaction is the worst outcome.”
$3,500 extra dollars per household per year would be a horrible blow to Americans. The good news is that it can be fixed, just probably not by Obama: “If Republican candidate Mitt Romney wins, negotiations on the ‘fiscal cliff’ could be pushed off until 2013.” That would give America time and give Washington time to figure out a different budget that wouldn’t invite metaphors like “cliff.”
Obama has already been bad for the American economy. But a second term of Obama would be much worse.