Business Fears The Obama Cliff, Not the Fiscal Cliff

The biggest risk for Americans right now is the political impasse in Washington because it will result in huge tax hikes and spending cuts next year. As the article puts it, a "rising number of manufacturers are canceling new investments and putting off new hires because they fear paralysis in Washington."

Posted 08/06/2012 06:58 PM ET
Investors.com

The New York Times says businesses are cutting back because of the "fiscal cliff" of spending cuts and tax hikes that'll kick in should Congress remain gridlocked. But what worries businesses more is the Obama Cliff.

As the election gets closer, more and more news outlets are picking up on the theme that a political impasse in Washington is the biggest risk to the economy because it will result in huge tax hikes and spending cuts next year.

As the Times put it, a "rising number of manufacturers are canceling new investments and putting off new hires because they fear paralysis in Washington."

There's no doubt that inaction means trouble. Unless Congress does something, all the Bush tax cuts will expire, boosting taxes by $221 billion next year alone. And, as we've pointed out, the scheduled automatic defense cuts threaten our national security capabilities, to say nothing of DOD contractor jobs.

But the gridlock theme also just happens to suit Obama's political interest, letting him blame Republicans for any bad economic news before the election.

So let's be clear about who's really to blame for this predicament.

Republicans simply want to extend all Bush tax cuts for a year, a position shared by several Democrats, including Bill Clinton before Obama forced him to repent. Obama himself once said that the worst time to raise taxes is in a bad economy.

Yet Obama has now expressly promised to let taxes go up on everyone if he can't get them raised on the "rich." And Democrats show an increased willingness to hold a gun to the economy's head if they can't force Republicans to play their class warfare games.

Nevertheless, the real problem businesses face isn't gridlock in Washington — lawmakers are sure to strike a deal before years' end.

The real problem they face is the cliff of a potential Obama reelection.

Even if they won't admit it to the New York Times, businesses know that a second Obama term will mean:

Higher taxes. Obama wants to jack up income tax rates not only on the "rich," but also raise the top capital gains rate to 24.7% and the top dividend tax to 44.7%. When this fails to produce any revenue, he'll certainly be back for more.

More debt. The budget Obama put forward this year proposed adding $3.5 trillion to the projected deficits over the next decade. Businesses are right to wonder why he'd be any more willing to cut federal red ink in a second term.

More regulations. Obama has already imposed $46 billion in new annual regulatory costs. And he clearly wants more. The National Federation of Independent Business calculates that 4,000 federal rules are in the wings that will saddle businesses with $500 billion in compliance costs.

ObamaCare. A second Obama term would also kill any chance of getting rid of ObamaCare and its massively expensive mandates, taxes and regulations.

With Obama continuing to do well in the polls, it's no wonder businesses are hunkering down today.

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