After a frigid legislative session and a seven-week break, Congress has suited up and is back for a short lame duck session. Because Washington failed to legislate leading into the election, there’s a lot on the calendar, but the most important issue to be resolved is the fiscal cliff.
Only 49 days remain before a series of tax increases and spending cuts, known as the fiscal cliff, arrives, threatening to send the economy into a second recession. The fiscal cliff includes the 2001/2003 tax cuts — that have been extended under both Presidents Obama and Bush – set to expire at the end of next month and haphazard spending cuts instituted when Congress’ super committee failed to reach an agreement earlier this year.
The President is meeting today and tomorrow with leaders from across the nation attempting to receive advice on how to move forward. Today, he meets with labor union leaders, and tomorrow with business leaders (for a full list, click here).
The catch is that not a single banker was invited to the discussions, and only one leader of financial services. While the discussions will shed light on the cliff’s impact on consumer spending, the cliff could have substantial effects on the financial and banking sectors, and thus any plan must carefully navigate the needs of those sectors. The seemingly purposeful exclusion of experts in finance and banking is concerning.
However, a few blocks from the White House on Capitol Hill, tensions are already cooling as Republicans and Democrats discuss how to raise revenue without harming the economy, and it is very likely that for better or worse a compromise is in the works.
That being said, it is also unlikely there will be time to draft legislation and work out the details of the compromise. Due to time restraints, many expect the lame duck to produce a “bridge” or temporary extension of certain aspects of the fiscal cliff until March or even June.
The next few weeks are pivotal as political gamesmanship could set the tone for the next few years and startle markets and investors. Watch closely, as the bridge could include language for tax reform, the Wind Production Tax Credit, and treatment of defense and discretionary spending cuts. Like always, I am twisting my fingers for a solution for Social Security and Medicare spending. Those are the real drivers of the debt, and unfortunately for tomorrow’s retirees, Congress has yet to ensure they are sustainable.