Articles - Fiscal cliff deal success but uncertainty remains


US reaches fiscal cliff deal, but uncertainty remains - Keith Wade, Chief Economist & Strategist, Schroders

 Risk assets have rallied after the fiscal cliff was averted, but fiscal uncertainty lingers over entitlement reform.
 The US Congress has passed a bill which will allow the economy to avoid the worst of the fiscal cliff. In a compromise deal the Bush tax cuts are extended to those earning less than $400k per annum, thus preventing the worst of the potential tax increases which would have hit households from this month. Spending cuts have also been delayed for two months.

 Markets have breathed a sigh of relief with risk assets rallying, suggesting that investors had not been that confident that the politicians would ultimately do the right thing.

 Higher taxes on the wealthy will not make a significant dent in consumption as they are likely to be largely met through lower saving. Despite the protestations of many Republicans, it is also difficult to see how an increase in the top rate of income tax from 35% to 39.6% will stifle American enterprise. However, the decision to allow the 2% payroll tax cut to expire will hit many families and is set to raise $95billion, about 0.6% GDP.

 When combined with other measures such as higher dividends, capital gains taxes and the temporarily delayed spending cuts, we are looking at a 2013 fiscal tightening of about $160 billion or 1% GDP. Whilst marginally less than we had factored into our forecast, the scope for upside risk to our 1.9% US GDP growth forecast for 2013 is limited.

 Despite the latest agreement, fiscal uncertainty remains with little progress being made on entitlement reform where Republicans and Democrats remain as divided as ever. Lifting the debt ceiling by end February/ early March and then going on to strike a longer term deal (a “Grand bargain”) promises to be a major challenge. Against this backdrop, the fiscal uncertainty which has weighed on longer-term investment decisions is set to persist. We believe this will weigh on growth as spending on durable goods and capital equipment is held back.
  

Back to Index


Similar News to this Story

Skilled actuaries required
Since the upheaval of pension freedoms in 2015 when drawdown rules were relaxed and annuity sales declined, the role of actuaries in the DC space ha
A step change is expected for DB pension scheme funding
Mike Smedley, Pensions Partner at KPMG in the UK discusses some of the changes expected for DB pension scheme funding in 2019
What does the ideal actuarial consultant look like
We recently published our Navigating Change report, which looks at the changing role of the actuarial consultant. One issue that struck me was the wid

Site Search

Exact   Any  

Latest Actuarial Jobs

Actuarial Login

Email
Password
 Jobseeker    Client
Reminder Logon

APA Sponsors

Actuarial Jobs & News Feeds

Jobs RSS News RSS

WikiActuary

Be the first to contribute to our definitive actuarial reference forum. Built by actuaries for actuaries.