Stocks rally as the immediate fiscal cliff panic was defused
Posted By RichC on January 2, 2013
Well the “fiscal cliff” has been averted for the time being … a sort of a “kick the can down the road” decision was made in Washington DC … to use two of the banished terms for 2013 (link). The deal with hardly dealt with spending, the deficit or the looming under-funded entitlements which are the biggest drivers of the U.S. debt. Most analyst conclude that President Obama won round one and has fulfilled his campaign promise of raising taxes on the wealthy with the top marginal tax rate he demanded be set at 39.6%. In fact, he was able to do this without cutting much spending as demanded by conservatives. Republicans can “try” to put lipstick on this pig by saying that they were able to move the “wealthy descriptor” income from $200,000/$250,000 to $400,000/$450,000 for individuals or married couples. That seemed to satisfy some (probably those earning $200-400,000), but the biggest perceived victory besides preventing a downgrade of U.S. bonds, was to protect every American from the same kind of tax increases. According to most economists, a tax increase on every American in today’s economy would have triggered a second recession and significant number of job losses.
The congress also negotiated lessor changes in dividend rates as well as long term capital gains rates hikes even though they did rise … but the smaller number was seen as a compromise and positive for the financial markets. Neither those wanting higher taxes or the side wanting lower (or no) tax changes were happy with the legislation. Unfortunately in the end, very little was done to balance the budget or deal with government’s excessive spending.
Next hurdle, the “debt ceiling” in February.
Congress broke a rancorous stalemate Tuesday to pass legislation designed to avert the so-called fiscal cliff. But the compromise bill, which blocked most impending tax increases and postponed spending cuts largely by raising taxes on upper-income Americans, left a host of issues unresolved and guaranteed continued budget clashes between the parties.
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