Tags: fiscal | cliff | us | economy

BofA’s Meyer: Dreaded ‘Fiscal Cliff’ Is Closer Than You Think

Tuesday, 10 Jul 2012 09:33 AM

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The economy is plunging over a cliff, fiscally that is, and doing so much earlier than expected, economists warn.

At the end of the year, tax hikes such as the Bush-era tax cuts are set to expire, while automatic spending cuts agreed upon during the 2011 debt-ceiling impasse kick in, a combination known widely as a "fiscal cliff."

President Barack Obama has said he plans to extend the Bush tax cuts for those earning under $250,000 a year, but as it stands now, the expiration of Bush tax cuts and other tax holidays coupled with spending cuts kicking in is set to siphon hundreds of billions out of the economy next year alone.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

Some estimates see the fiscal cliff drawing out as much as $7 trillion out of the economy over a decade, which could seriously derail the economy.

That cliff, economists say, is already here.

Businesses are starting to hold off on investing to brace for tax uncertainty, and by doing so, are pushing the economy closer to the fiscal cliff before Jan. 1, 2013, the day of its official arrival.

"The fiscal cliff is not just a year-end story," Michelle Meyer and the economics team at Bank of America Merrill Lynch write in a report to clients, CNBC reports.

"We expect the uncertainty shock to be realized in the coming months, escalating before the election."

The U.S. economy grew 1.9 percent in the first quarter and that may be as good as it gets, Bank of America Merrill Lynch economists say.

Expect the country's gross domestic product to grow 1.5 percent on year in the second quarter and just a 1.3 percent GDP in the current quarter.

Some economists say Obama should extend the Bush tax cuts for everyone.

Higher taxes anywhere can stifle job demand, says Carl Riccadonna, senior U.S. economist with Deutsche Bank.

"By pushing an extension for one group of taxpayers and not the other, you reduce the possibility of it being passed," Riccadonna says, according to CNNMoney.

"We don't need to raise taxes in the short term. When unemployment is down to 6 percent, we can talk about phasing out these tax cuts, even though that could be a while."

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.



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