Looming ‘Fiscal Cliff’ Batters Consumer Confidence

The new buzz-words on Wall Street – ‘fiscal cliff’ – are being used to describe the automatic tax increases and spending cuts which are set to come into effect on January 1, 2013. As the date draws ever closer, economists are sounding the alarm that the combination of spending cuts and tax increases could very well result in the United States going into a recession, which would have a detrimental effect on global economies. An estimate by the Congressional Budget Office notes that the US economy will contract by 0.5 percent in 2013, with employment levels increasing to 9.1 percent – certainly not what average Americans want to hear as many continue to struggle to keep head above water.

Congress and the White House are reportedly working on measures to prevent going over the fiscal cliff, and Wall Street investors, many of whom did not back the re-election of President Barack Obama, are no doubt anxious to hear what those measures will be and how it will affect stocks. Recent reports reveal, however, that consensus between congressional Republicans and the Obama camp will be hard to reach, and each side is already blaming the other for a possible recession. In his first news conference since his re-election, President Obama noted that if the Republicans continue to oppose tax hikes, middle class families will be faced with a big tax hike toward the end of the year. Obama is pushing to extend the tax cuts put in place by George W. Bush, except for individuals earning more than $200,000 a year, and couples earning more than $250,000 annually. Taxes on ordinary income, dividends, capital gains and estates are set to increase, with the top tax rate climbing from 35 percent to 39.6 percent.

Following a meeting of corporate leaders with the President at the White House on Wednesday, Chief Executive Officer of Honeywell International Inc., David Cote, was quoted as saying that most of those in attendance were ‘encouraged’ by the session. President of Wal-Mart Stores Inc. noted that it was critical for Obama and Congress to strike an agreement that would restore consumer confidence. Currently shoppers are hesitant to spend as they normally would for the festive season, due to the uncertainty regarding a tax increase in the New Year.