Economists: Obama Re-election Only Complicates Fate of Fiscal Cliff

Thursday, 08 Nov 2012 08:30 AM

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Presidential candidates pitched promises of change but in the end, voters didn't want it, which will complicate efforts to steer the country away from tax hikes and spending cuts poised to strike the economy next year, Wall Street economists say.

In Tuesday's elections, voters gave President Barack Obama a second term in office and kept Democrats in control of the Senate and Republicans in control of the House of Representatives.

Both parties will have to work together to steer the country away from a sharp fiscal adjustment by year end, when the Bush-era tax cuts and other benefits are scheduled to expire at the same time automatic cuts to government spending kick in, a combination known as a fiscal cliff that could send the country into recession if left unchecked by lawmakers.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

Partisan bickering and gridlock could ruin everything.

“Returning to status quo likely means all sides see the voters as supporting their views, which means reaching compromise is not likely to get any easier,” economists at Bank of America Merrill Lynch wrote to clients, according to The Wall Street Journal.

Compromise won't be easy to achieve, they added.

In 2011, Republicans and Democrats agreed at the very last second to lift the debt ceiling, narrowly avoiding default and spooking investors in the process.

Expect both parties to bicker over tax breaks, with Democrats wanting them to expire for the wealthy and Republicans wanting them extended for everyone.

"If Republicans do not concede ground on this issue, then the risk rises that Democrats allow the Bush tax cuts to all expire in order to push their own ‘middle income tax relief’ plan,” Bank of America economists wrote, the Journal added.

Many economists have said they expect lawmakers to sidestep the issue by punting on deadlines for tax hikes and spending cuts early next year, thus putting off making tough decisions for a few extra months.

Senate Majority Leader Harry Reid, a Nevada Democrat, said he would like to avoid that.

"I'm not for kicking the can down the road,” Reid said, according to the Christian Science Monitor.

“I think we've done that far too much. We know what the issue is. We need to solve that issue. Waiting for a month, six weeks, six months, that's not going to solve the problem. We know what needs to be done. And so I think that we should just roll up our sleeves and get it done.”

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

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