Bland — not grand — bargain would suffice, strategist says

Small compromises and concession would likely help U.S. steer clear of fiscal cliff

Nov 13, 2012 @ 3:49 pm

By Andrew Osterland

Forget about a “grand bargain” in Washington to avoid the fiscal cliff of tax increases and government spending cuts that awaits at year-end. A bland one would do, said Thomas Gallagher, a principal at The Scowcroft Group, a business advisory firm.

Mr. Gallagher, who addressed journalists at a Morgan Stanley financial markets outlook meeting today, said the status quo election didn't bode particularly well for a deal.

For one thing, the political landscape is virtually unchanged, with Democrats still controlling the White House and Senate and Republicans maintaining a majority in the house. Democrats have the momentum coming out of the election, but House Republicans, “almost all of whom voted for the [Rep. Paul] Ryan [R-Wis.] budget and were re-elected,” aren't likely to back down from their pledges not to raise taxes.

“It's not an outcome that's conducive to compromise,” said Mr. Gallagher. That said, he does expect a deal because of two major factors. First, President Barack Obama doesn't have to run for re-election and can now politically afford a compromise, and two, Republicans may determine they can get a better deal now rather than later.

“No one wants to be blamed for a recession if gridlock continues,” Mr. Gallagher said.

He cautioned that the cliff is for real and would have dramatically negative effect on the economy. “Some say it wouldn't be so bad, but it is a cliff and I think [if we did go over it], we would see a quick negative response in the economic data,” he said.

He also said that it would be difficult to find enough tax revenue through limiting or capping deductions for some or all taxpayers. “The idea hasn't been fully vetted,” Mr. Gallagher said. There just aren't enough loopholes, and the biggest ones are the ones that people want to keep most.”

Instead, he expects some increase in upper income tax brackets combined with spending cuts. He also expects the deal is likely to be cut in the Senate and brought to House Republicans.

“I think a bland bargain is likely next year with a fiscal drag on the economy of between 1% and 2% of [gross domestic product],” said Mr. Gallagher.

Mr. Obama is having meetings on the subject with labor leaders today and business leaders tomorrow.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

The undiscovered cyber threats advisers should really worry about

What's the biggest cyber security threat that could really hamper your practice? Cyber Expert Tony Scott offers some strategies to keep your firm safe.

Video Spotlight

Help Clients Be Prepared, Not Surprised

Sponsored by Prudential

Recommended Video

Path to growth

Latest news & opinion

Why private equity wants a piece of the RIA market

Several factors, including consolidation in the independent advice industry and PE's own growing mountain of cash, are fueling the zeal to invest.

Finra bars former UBS rep for private securities transactions

Regulator says Kenneth Tyrrell engaged in undisclosed trades worth $13 million.

Stripped of fat commissions, nontraded REIT sales tank

The "income, diversify and interest rate" pitch was never the main draw for brokers.

Morgan Stanley fires former Congressman Harold Ford for misconduct

Allegations against the wirehouse's former managing director include sexual harassment, which Ford denies.

Finra notes compliance pitfalls in first-time release of exam findings

Broker-dealer self-regulator summarizes deficiencies on areas including product suitability, cybersecurity

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print