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Deal or no deal, U.S. feels pain

Friday, Dec 28, 2012 - 02:32

Dec. 28 - Whether Washington delivers a scaled-down tax and spending plan, a retroactive one or none at all, the U.S. economy will not emerge unscathed. Jeanne Yurman reports.

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Global markets and U.S. businesses and taxpayers are cracking their collective knuckles to see what or if a deal on the 'fiscal cliff' emerges from Washington. What politicians agree to by December 31st - or don't - about expiring tax laws and automatic spending cuts will impact the economy. The only question: will it be a mild bruising or a full on body blow? Taking a look at three broad scenarios: Congress and the White House could deliver a scaled back plan. Economist Bricklin Dwyer of BNP Paribas calls it patchwork: SOUNDBITE: BRICKLIN DWYER, ECONOMIST, BNP PARIBAS (ENGLISH) SAYING: "Patchwork means we get no certainty beyond say six months or so. Patchwork means you mean you may get a temporary extension of things like emergency unemployment benefits but nothing permanent, nothing to establish certainty on the investment outlook on what's going to happen to your taxes at the end of the year and perhaps next year." That uncertainty has already taken a toll on consumer confidence and spending. Brian Kessler at Moody's Analytics. SOUNDBITE: BRIAN KESSLER, ECONOMIST, MOODY'S ANALYTICS (ENGLISH) SAYING: "Rather than a fiscal cliff were looking at more like a fiscal slope and that's something that gradually starts, probably has already started and gradually phases in over the course of the next month or maybe two." Another scenario: no deal is reached. Taxes go up but Congress passes legislation to retroactively claw back tax rates sometime next month. In this case, small businesses, representing half of all private sector employees, get slammed. SOUNDBITE: BRICKLIN DWYER, ECONOMIST, BNP PARIBAS (ENGLISH) SAYING: "You know operating systems are not set up to handle these fluctuations in tax rates. So it will get very messy. It will dampen confidence and it will strike a reality in consumers that their taxes may go up, maybe not today as they did yesterday, they reverted but they may be going up tomorrow. So that reality will dampen their expectations and also limit their ability to borrow and consume." And last, though Marc Chandler of Brown Brothers Harriman says unlikely, is no deal. MARC CHANDLER, GLOBAL HEAD OF CURRENCY, BROWN BROTHERS HARRIMAN "If we go over the cliff sort of full monty then it could drive the U.S. economy into recession especially in the first half of the year." Prospects for any agreement before the 31st are dwindling. Odds now lean toward the new Congress seeking a retroactive fix.

Deal or no deal, U.S. feels pain

Friday, Dec 28, 2012 - 02:32

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