Even with the elections finally out of the way, the expiration of the current tax rates at the end of the year, along with the threat of the “fiscal cliff,” still need to be resolved.
“Until there is a deal, uncertainty is going to prevail,” said Tom Marino, CPA, co-CEO and partner in the recently merged firm CohnReznick, in an interview Wednesday. “And l think the closer you get to December 31, you’re going to have more people trying to take, for instance, capital gains. There’s just no way, in my opinion, you’re going to get a deal by the end of the year. What I think you may get is an extension for six months or nine months, and then it’s going to be time to hammer it out.”
Marino pointed out that President Obama will need to take into account the fact that the balance of power in Congress is not going to change significantly after the election. “The people may be unhappy with what’s going on, and that’s why the election was so close, but somehow they brought back the same people to Congress,” he said.
But Marino believes there will be more pressure on Obama to strike a deal with Congress to prevent the economy from going off the fiscal cliff.
“I don’t think Obama is going to be able to blame a recession anymore on George Bush,” he said. “I think this is going to fall on him if he doesn’t deal with this fiscal cliff. If we do fall off it, you’re going to come a lot closer to balancing the budget, but you are for sure going to fall into a recession. There’s no doubt about it. To a certain extent, because of the uncertainty, people have stopped spending right now. So he has to deal with it, and he can’t use what he’s used for the first four years and talk about the previous administration. He’s got to reach across the aisle. You’ll never do it in time, so the best you can do is go for an extension of time, and then it’s time for Congress and the President to start acting like adults and come to a reasonable compromise on how to fix this problem because uncertainty will kill you too.”
Even if there is a short-term extension of the current tax rates during the lame-duck session of Congress, Marino thinks the uncertainty will continue and people will continue to avoid spending. “We need to restore confidence in the marketplace,” he said. “Until it’s resolved, people are going to be hoarding money.”
After a short-term extension of the current tax rates is finished, “it’s a matter of banging some heads together,” said Marino. “Until it’s finally resolved and not through an extension, I think consumers are going to lack confidence, spending is going to be self-restricted, and we’re not going to get appreciably better in the marketplace. This time I think the President has to deal with it more actively. Previous to this, he would pop in for a couple of meetings, leave, and have Congress work it out. Now it’s going to fall to him because there’s nobody to blame anymore. So he’s going to have to reach across the aisle and come to a compromise that both parties can live with.”