Happy New Year. We begin this year as we ended the last – approaching another cliff. To start the year off right, I appeared yesterday on CNBC to discuss the ramifications of the fiscal cliff compromise. You may access the segment by clicking here.
Next week I will be circulating an update analyzing the implications of the compromise for near-term legislation in 2013. In the meantime, here are the talking points I provided to CNBC and other members of the press.
Talking Points on the Fiscal Cliff Compromise
Andy Friedman
Principal, The Washington Update
Did anything surprise you about the final compromise?
As I frequently mention, Congress has reached the point where it acts only when there is a “forcing event” – that is, where the consequences of inaction are intolerable. I figured we would see a compromise. What is worrisome is how much closer to the forcing event we have to be before a compromise is reached, and how, with each forcing event, Congress seems to kick the can a shorter distance down the road.
And this pattern of forcing events continues?
It sure does. The compromise leaves us with three forcing events in the first quarter. First, the United States has hit its debt limit, and that ceiling must be raised to permit the country to continue to borrow. Second, the implementation of the sequestration spending cuts is delayed only until March 1. And finally, on March 31 the federal government will shut down unless Congress appropriates additional funds. These three events are likely to be considered together for purposes of fashioning legislation.
What sort of deal do you expect on these items?
To raise the debt ceiling and address the other upcoming “forcing events”, the Republicans will demand spending cuts (which were almost entirely absent in the fiscal cliff compromise). It is no longer possible to meet those demands simply by cutting discretionary spending. The Democrats in turn will demand that the spending cuts be balanced with additional tax increases. It is no longer possible to meet those demands simply by raising tax rates. That means we are heading for a debate over entitlements and tax reform.
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Andrew H. Friedman is the Principal of The Washington Update LLC and a former senior partner in a Washington, D.C. law firm. He speaks regularly on legislative and regulatory developments and trends affecting investment, insurance, and retirement products. He may be reached at www.TheWashingtonUpdate.com.
Neither the author of this paper, nor any law firm with which the author may be associated, is providing legal or tax advice as to the matters discussed herein. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. It is not intended as legal or tax advice and individuals may not rely upon it (including for purposes of avoiding tax penalties imposed by the IRS or state and local tax authorities). Individuals should consult their own legal and tax counsel as to matters discussed herein and before entering into any estate planning, trust, investment, retirement, or insurance arrangement.
Copyright Andrew H. Friedman 2013. Reprinted by permission. All rights reserved.
