Tags: Bernstein | Fiscal | Cliff | Markets

Richard Bernstein: U.S. 'Fiscal Cliff' Could Roil Global Markets

Wednesday, 25 April 2012 07:43 AM

The U.S. could run off a fiscal cliff by year end, when tax cuts expire and automatic spending cuts kick in, sucking hundreds of billions of dollars out of the economy.

While such a scenario has market watchers in the U.S. worried, global markets could suffer as well if the White House and Congress don't act.

"People don't realize the U.S. was the only major economy in the world that improved last year," says Richard Bernstein, head of money manager Richard Bernstein Advisors in New York, according to USA Today.

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"It's not strong, but it certainly has improved. … As we progress through this year, the fiscal cliff will be a major issue — for (financial) markets all over the world."

The country goes to the polls in November to elect a new president and members of Congress and just afterwards at the end of the year, the Bush tax cuts are set to expire.

Meanwhile, automatic spending cuts are designed to kick in at the same time, and the combination of hiking taxes and cutting spending could suck billions out of the economy.

Some say the U.S. economy could experience recession-like symptoms if leadership fails to address the situation by renewing the Bush tax cuts.

Without action, the "fiscal cliff'' could shrink next year's economy by 3.5 percent, or about $575 billion, says Mark Zandi, chief economist at Moody's Analytics, USA Today reports separately.

"If policymakers do nothing, early 2013 will be recession-like," Zandi adds.

Others predict equally dire forecasts, including Curtis Dubay, a senior analyst in Tax Policy at the Heritage Foundation, who says Americans will see a $494 billion tax increase alone at the beginning of 2013 when also factoring in taxes associated with President Barack Obama's Patient Protection and Affordable Care Act.

"[The tax increase] is hitting because of expiring tax policies and the beginning of five taxes in Obamacare," Dubay told The Daily Caller recently.

"Seventy percent of the tax hike falls directly on middle and low income families," Dubay adds.

"That might surprise some people because you’ve heard for the last 12 years that the Bush tax cuts were just tax cuts for the rich, which is simply not true."

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