After the 2012 US elections, investors’ worry has found a new focus in the unresolved 2013 fiscal cliff crisis in the US, which involves a series of automatic spending cuts and tax hikes slated to begin on January 1, 2013.
The 2013 fiscal cliff is more than $600bn (£377bn) drag on the economy caused by tax increases and government spending cuts slated to become effective from January 1, unless lawmakers wish to avert it.
Analysts opine that the Democrats and Republicans, who have starkly different approaches to reducing US’ inflating deficit and jump-starting economic growth, must come to a compromise to limit the potential economic fallout.
The lack of clarity related to tax policy, bank regulations and health care costs have put businesses and Wall Street investors in wait-and-watch mode. “Investors are nervous about the market and don’t want to feed it capital because they don’t know what the rules of the road are going to be. It’s the same with employers. They won’t hire if they don’t know what taxes they will pay and what the cost of health care will be”, Hugh Johnson, chairman and chief investment officer at Hugh Johnson Advisors, said.
President Barack Obama addressed the 2013 fiscal cliff issue on Friday, in his first post-election event when he invited a group of middle class Americans to the White House to reassure the public that the powers in the Beltway were committed to working toward a solution. He insisted though that a compromise must include higher taxes on the rich, while tax cuts for families earning less than $250,000 annually should be extended.
The newly re-elected President Barack Obama said about fiscal cliff, “We’re serious about reducing the deficit. We have to combine spending cuts with revenue, and that means asking the wealthiest Americans to pay a little more in taxes. I’m not going to ask students and seniors and middle class families to pay down the entire deficit, while people like me making over $250,000 aren’t asked to pay a dime more in taxes. I’m not going to do that.”