President Obama Must Address The Fiscal Cliff:
What has been dubbed the “Fiscal Cliff” is becoming a bigger problem for President Obama. The fiscal cliff also known as “Tax Armageddon” will occur on January 1, 2013 which could mean higher taxes and over $100billion in automatic cuts to the Pentagon and domestic agencies. The fiscal cliff has already had a negative impact on business activity and has been brewing for months with Republicans, Democrats and the business community urging the President to take action before it’s too late.
Markets have been buoyed by stimulus from the Federal Reserve Bank via quantitative easing and ‘Operation Twist” but this may not be enough to move the needle on the economy, and with rising unemployment as well as weakness in Europe, the U.S. could be severely impacted by an unwillingness to make executive compromises that could cost the taxpayer.
Defense contracts are on hold, businesses are worried about taxes – uncertainty about healthcare costs, dividends and a host of issues that make investment ultra risky in an environment that has been plagued by stalemates or possible government shutdowns. President Obama can easily be seen as more business friendly (if he values this) by addressing the fiscal cliff and perhaps taking one aspect off the table such as the so-called “Bush Tax Cuts”. It would easily move him up a few points in the polls if he ‘reluctantly’ passed the tax cuts and addressed the fiscal cliff which has become popular vernacular being used by the press, Federal Reserve Chairman Ben Bernanke and others. This should be considered low hanging fruit politically and it may be time to compromise before the summer business spending doldrums take root resulting in further economic weakness that could hurt his reelection chances or more importantly the economy – long run.
Immigration, gay marriage and issues in the Middle East may help the president gain constituents, but rising unemployment could be the main issue that keeps voters away from the polls. The fiscal cliff should not be ignored and the President should consider viable options to avoid endangering an already weak economic recovery. Waiting until next year if he is reelected won’t help because businesses are already holding back.
U.S. equities would roar after hearing the news and the Bernanke Put wouldn’t be the only thing keeping markets afloat. If President Obama ignores the fiscal cliff – it could severely damage his election prospects because unemployment has risen from 8.1 percent to 8.2 percent in the last month and June 2012 levels will not change this trend. Our forecast for jobs growth in June is now 75,000 +- 50,000 which may have investors clamoring for more quantitative easing and raises the possibility of QE3.