Tags: Fiscal | Cliff | hope | deal

Strategist David Nelson to Moneynews: Hope ‘Fading Fast’ for Fiscal Cliff Deal

Friday, 21 Dec 2012 06:00 PM

By Forrest Jones and Kathleen Walter

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Hopes that Washington will steer the country away from the fast-approaching fiscal cliff are fading after House Republicans refused to vote on a proposal tabled by their leader John Boehner, raising the chances that a recession may strike, said David Nelson, chief strategist of Belpointe Asset Management.

The White House and Congress are currently negotiating fiscal reforms for next year.

Failure to agree on a 2013 framework would allow sweeping tax hikes to kick in at the same time deep government spending cuts take effect a the end of the year, a combination known as a fiscal cliff that could tip the country into a recession next year.

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Republicans in the House of Representatives canceled plans to vote on a budget proposal put forth by Boehner widely known as Plan B, which called for tax hikes for those with incomes over $1 million, well above a White House plan that would hike taxes on those with incomes topping $400,000.

Further delays could prove harmful or even fatal for U.S. gross domestic product (GDP) growth next year.

“It certainly will be a drag on GDP going forward and it could be severe enough and we could be looking at a recession at least for the first part of the year,” Nelson told Newsmax TV in an exclusive interview.

Editor's Note: Make 2013 the Year You Pay Zero Taxes

“The hope is out there, but it is certainly fading fast … the rhetoric is particularly dark, with all sides blaming each other and it’s almost like both sides have put up the barricades.”

Markets have risen in recent weeks on hopes the White House and congressional Republicans were moving closer toward a deal. But stocks fell more than 1 percent Friday after House Republicans called off a vote on tax rates and left federal budget talks in disarray 10 days before sweeping tax increases and government spending cuts are scheduled to take effect.

The White House, which first called for tax hikes on for people with incomes over $250,000, raised that threshold to $400,000 to appease Republicans.

Boehner, who originally opposed income tax hikes in general, moved to approve tax hikes on those with incomes of $1 million or more.

Should both sides manage to reach a deal and avoid the cliff, markets would likely respond by applauding.

“If they can hammer out an agreement, the markets will recover and it will be fairly rapid,” said Nelson, also a Moneynews contributor.

“In the last several weeks, the markets have been anticipating a deal to come through, so it kind of tells you where the markets would be if we had a deal,” he added.

“Of course, it would depend on what the makeup of the deal is.”

Editor's Note: Make 2013 the Year You Pay Zero Taxes

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