Washington INsider

Washington INsiderblog

Mark Schoeff Jr. looks at what's really happening on Capitol Hill - and the upshot for advisers.

Advisers set grinch-like expectations for fiscal-cliff talks

'We don't have statesmen in the government'

Dec 14, 2012 @ 3:03 pm

By Mark Schoeff Jr.

Federal lawmakers have been compared to college students who tend only to be productive on the eve of an exam.

Congress and the Obama administration still have more than two weeks to avert a plunge over the so-called fiscal cliff of automatic tax increases and spending cuts. But the desultory pace of negotiations has investment advisers doubting that they'll ace their test.

“They will probably come to some minor cosmetic agreement,” said John Hummel, chief investment officer for AIS Capital Management LLC. “It will be minimal.”

Blaine Dunn, owner of Dunn Financial Advisors LLC, predicts a modified version of a Washington chestnut: kicking the can down the road. He foresees President Barack Obama and House Speaker John Boehner, R-Ohio, cobbling together a package that gives the new Congress time to get settled after its seated in January.

“They are likely, for political purposes, to find a temporary fix that might last 90 to 180 days,” Mr. Dunn said.

The failure of the fiscal-cliff talks would ensure that everyone's taxes increase next year, which might make it easier to achieve rate reductions then.

“It would be politically expedient to fall off the cliff for groups who want to get the credit for making a tax cut later,” said Erin Baehr, president of Baehr Family Financial LLC.

Kori Allen, portfolio manager and part owner of Pine Haven Investment Counsel, is more hopeful.

“I believe the Obama administration has been showing more urgency and determination to resolve [fiscal-cliff] issues than in the prior term,” Ms. Allen said.

The problem with delaying this wrestling match until after the election is that the vote failed to provide the decisive outcome required to facilitate a fiscal-cliff resolution. Mr. Obama returned to the White House, while Republicans maintained control of the House and Democrats stayed in charge of the Senate.

The election continues to play out in December. Mr. Obama is trying to make a political point by raising taxes on high-earners. Most in the GOP are refusing to give in on a rate increase for anyone and are demanding substantial spending cuts from Democrats. The two sides echo their campaign ads.

All of this likely will add up to a fiscal-cliff agreement – whether congressional votes come as Champagne corks are popped on Dec. 31 or sometime in January – that does little to address the burgeoning federal debt.

Spending on social insurance programs like Medicare and Social Security are “the big elephant in the room that no one wants to touch,” Mr. Hummel said. “I don't believe Obama really wants to cut spending. I don't think [the GOP] has a power base sufficient to make changes.”

No one seems willing to rise above the fray.

“We don't have statesmen in the government, in my opinion,” Mr. Hummel said.

Even though I've worked in Washington for 20 years, I'm always surprised by the number of times I'm surprised by our political leaders. Maybe they'll rise to the occasion in the next two weeks.

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