Impacts and issues around the US fiscal cliff

With all this talk about the US teetering on the edge of a fiscal cliff, we turned to our Zintro experts to learn more about what is behind this concern and it’s impact.

Keith Rabin, a consultant with expertise in economic, trade, business and investment development, says that when talking about the fiscal cliff, it is important to note the momentum of the tea-party and conservative forces that have served to prevent solutions that involve tax increases. “It does not appear that we will see the same level of confrontation as when we last addressed this issue and some solution will be worked out after the election. At least for now, the market seems to endorse a conciliatory approach as seen in the market’s positive performance,” says Rabin. “The US needs to take note of global political and economic trends, such as Euro problems and weaknesses in China and emerging markets. These issues point to the need for the US to resolve the fiscal cliff problem.”

Interestingly, Rabin points out, this phenomenon is reflected in US companies that are recognizing that the big cost differential that they suffered from production in Asia is beginning to dissipate and rising wages in Asia is providing new markets and opportunities for US products. “The key point is that changing fundamentals, combined with extremely easy monetary policy, could lead to an unexpectedly large upsurge should US political leaders come to their senses and resolve this fiscal cliff issue in a sensible and productive manner,” he says.

Levi Moore, a government relations and public affairs consultant, says that the fiscal cliff is real and a significant part of it is a combination of math, medical, and technology problems. “Across the country, state and municipal governments are dealing with public employee pension obligations that are akin to ticking time-bombs. Technology has allowed governments to operate with fewer employees, thus fewer people paying into pension funds. But, the baby boomers are retiring in droves and there are huge numbers of retirees already getting benefits. So you have a lot less people paying to support a lot more,” explains Moore. “In addition to that, the medical aspect kicks in. People are living longer and those public retirees will receive benefits a lot longer. Per the National Center for Health Statistics, the life expectancy for a US male is now 79 years old. As recently as 1950, US males’ life expectancy was 69. So, there is an additional decade of benefits that the actuarial tables didn’t account for when some pension benefit plans were adopted.”

Jay Nelson, a senior editor for an executive newsletter, thinks that fears about the dangers of the fiscal cliff are overblown. “Congress will put in place temporary measures and either a new or re-elected president will have sway to get his way in the deal,” he says. “Investors and businesses will be able to adjust their strategies to prevent significant damage. And, tax increases or allowing the expiration of prior tax breaks will remove uncertainty from the economy, which is really what is weighing down activity as well as sentiment.”

See related story here

By Maureen Aylward

Recently, some of the following topics have seen inquiry activity: