Roger Altman: US Will Avoid the Fiscal Cliff

Tuesday, 04 Dec 2012 01:58 PM

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Republicans and Democrats are at odds over how to steer the country away from the fiscal cliff, a combination of tax hikes and spending cuts due to strike the economy at the end of the year, but eventually, both sides will strike a deal and avoid disaster, said Roger Altman, chairman at Evercore Partners and former Deputy Treasury Secretary.

At the end of this year, the Bush-era tax breaks and other benefits are set to expire at the same time automatic spending cuts are scheduled to kick in, a combination known as a fiscal cliff that could contract the economy by 0.5 percent next year if left unchecked by Congress, according Congressional Budget Office estimates.

Democrats and Republicans remain at odds over extending the Bush tax cuts for the wealthy, something the latter opposes on the argument that capping deductions instead will drum up revenue needed to narrow deficits without hiking rates, which could crimp the economy.

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

Democrats insist they won’t agree to a deal unless taxes rise on wealthier Americans, and markets in the meanwhile continue to grow nervous as the cliff gets closer with no deal in sight.

Have faith, Altman wrote in a Financial Times OpEd,

Lawmakers will strike a deal.

“America will not go over the fiscal cliff and stay there,” he said.

“However bumpy the talks, a deficit agreement will probably emerge just before or a week or two after the year-end deadline. The agreement will reduce deficits without injuring economic growth. And it will boost consumer and business confidence.”

Democrats will get their way, Altman suggested.

During the elections, President Barack Obama insisted that tax breaks should expire on wealthier Americans, while polls — and election results — revealed that most Americans agreed with him.

But secondly, markets are not only loathe to going over the cliff, but they also won’t stand for suffering the agonizing uncertainty that prolonged negotiations would bring, and roiling markets will prompt lawmakers to strike a deal rather than hold out for optimal results.

“Markets are already preoccupied by the fiscal cliff. If negotiations appear stuck, share prices will fall as year-end approaches. Then, if the deadline passes without agreement, they will probably plummet,” Altman wrote.

“Under that pressure, as in 2008, Washington will probably produce a deficit agreement. At worst, Congress and the president would extend the middle-income tax cuts on which they agree. There will be no direct blow to the economy.”

Market participants have said that even if a deal is struck and recession averted, uncertainty over how much the government will be spending and how much individuals and businesses will be paying in taxes has already prompted many firms of all sizes to throttle back on commerce these days and hold off on investing in 2013.

Failure to quickly strike a deal to avoid the cliff could bruise the economy not only next year but into 2014 as well if businesses remain uncertain.

“I’m more concerned about business behavior slowing down than I am about consumer behavior,” Bank of America CEO Brian Moynihan told CNBC.

“I think we’re in danger if this thing strings out into 2013 that you could start to have problems of what 2014 would look like.”

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

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