Tags: Levenson | fiscal | cliff | bump

T. Rowe Price’s Levenson: Fiscal Cliff Will Turn into ‘Speed Bump’

Friday, 23 Nov 2012 07:53 AM

By Dan Weil

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The fiscal cliff, which many view as a daunting albatross, will actually be quite manageable in the end, says Alan Levenson, chief economist of T. Rowe Price.

The cliff calls for $607 billion of tax increases and spending cuts if Congress and the president don’t act before year-end. That amounts to about 4 percent of gross domestic product (GDP).

Congress should be able to trim that to 1.5 percent of GDP by increasing Medicare reimbursements to physicians, extending the alternative minimum tax patch and continuing the Bush-era tax cuts for the middle class, Levenson tells Yahoo.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

"So you're left with … a manageable speed bump to go over without breaking an axle."

Congress will put off the heavy lifting until next year, he says. Then Levenson expects a ''baby grand bargain rather than a concert grand bargain,'' constituting a down payment on a $4 trillion, 10-year deal.

He thinks that will consist of increased tax revenue and entitlement reform, particularly on Medicare and Medicaid.

By contrast, Peter Schiff, CEO of Euro Pacific Capital, would like to see the government dive right off the fiscal cliff to radically reduce debt.

“What is so terrible about that?” he writes on Business Insider. “I would argue that there is a greater danger in avoiding the cliff than driving over it.”

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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