Fiscal Cliff Looming for President Obama's Second Term
With the election over and President Obama returning to the White House one of the big issues that remains is the looming "fiscal cliff. "
The budget crisis issue hasn't been resolved by Obama's first term and has many taxpayers worried.
Starting January of next year, the "fiscal cliff" package will stunt the economy's growth with automatic spending cuts and increases in taxes that could put the country into a deeper recession. The package includes $7 trillion worth of tax increases and spending cuts over a decade.
The fiscal policies that the cliff impacts include reductions in spending across the board, the expiration of the Bush era tax cuts, and the end of a payroll tax holiday.
Michael Yoshikami, chief executive officer and founder of Destination Wealth Management commented, "There will be an immediate shift to government gridlock and the fiscal cliff issue, and that will be a headwind for stocks."
The president will also contend with a divided Congress as the Republican Party controls the House of Representatives leading to additional gridlock in the Capital.
John Boehner, the head Republican in the House of Representatives, plans on giving a statement on Wednesday at 3:30 pm ET that will address bringing together Congress and the President to work on avoiding the "fiscal cliff."
If bipartisan action can't resolve the issue by December, the country could feel an economic jolt that will hurt whatever progress was made to getting the US back in shape.
In addition to the "fiscal cliff", the president also needs to address the issue of raising the debt ceiling.
Congressional scholar Norman Ornstein thinks there are three possible outcomes for how the situation could be handled, as reported by CNN.
One is for a framework deal between senators and business leaders to increase revenue for deficit reduction which would need the president's endorsement and a vote from the House of Representatives.
Another option is that the President lets the country go over the "fiscal cliff" and mandate a major tax cut on Jan. 1 for everyone but the top one percent.
The third response Ornstein foresees is that the government will postpone the cliff until later in 2013 to give the country more time to come up with a solution.
While any of these could happen, Ornstein added, "One wild card, of course, is the reaction of the markets."
