Time to Embrace the Fiscal Cliff

 | Nov 26, 2012 | 3:00 PM EST  | Comments
  • Comment
  • Print Print
  • Print

Time has run out. It seems clear to me that the fiscal cliff is dead ahead of us, and there is little hope left of anything much more substantial than the most superficial "can kick" of three to six months. And that isn't going to increase confidence one iota. It's time to look at the positive side of this, if there is one, and "embrace the cliff."

It's not like I'm hoping for this, but two years of inaction that have included a debt-ceiling crisis and bond downgrade were supposed to have been settled by our recent election.

Instead, in these last few days, we are seeing a president who will not move from seeing an increase of tax rates, not just an increase of revenue, and a quieter but no less intransigent Republican Congress whose leader recently wrote that he'd like to see the president's flagship first-term piece of legislation, the Affordable Care Act, brought back into the negotiations. An op-ed today from Warren Buffett advocating higher tax rates for the wealthy was countered by an op-ed just as confidently rejecting that view from Banking Committee Senator Bob Corker.

What am I missing? Does this look like a different attitude in Washington from what we saw in the previous two years? Does it sound like a breakthrough in "grand bargain" negotiations is about to be made?

Hardly -- it looks like the same palaver and political wrestling that we've seen for the past three years is about to repeat itself for the next three. So let's face it down: It's time to look at the small bright side of this fiscal cliff and embrace what good those mandatory tax increases and spending cuts will do.

Here are a few of the bright spots: First, there will be a repeal of all the Bush tax cuts, which, despite being a help to our recovery in the last several years, are probably less necessary than they once were. And honestly, just rewinding them exclusively for wealthy people was never the fairest way to approach increasing revenue. I wasn't an advocate for a full rollback of rates for those making under $250,000, but everyone should have to bear some of the burden in reversing our deficit challenge, not just the very wealthy.

Talking about spending cuts, here's a part of the sequester that you'll get that neither party would negotiate for otherwise: a $200 billion reduction in military spending. It's been off-limits for either Democrats or Republicans to speak about slicing a big cut from the military, which is arguably more than $600 billion of a $1.3 trillion yearly budget.

There's far more to hate than to like, obviously. But we've got to prepare for what has been the recent modus operandi of our government: its inability to shed partisan dogma and govern. That's why I've been very pessimistic on stocks and commodities and advised harvesting a larger proportion of gains as well as losses if you can spare the cash to pay the taxes.

Ultimately, I remain bullish. The resilience of the U.S. economy is not worth betting against and has proved worthy of investment for the last three years. But first, it looks like another deep pothole is just ahead of us, and I'm guessing our government won't surprise us with any last-minute tar filling. 

Columnist Conversations

HLF closed Wednesday trading at $43.63, down small with IV30™ down 3.2%. Conclusion HLF is down 40% sinc...
The Russell 2000 has led the broader market lower and today it returned to its 2014 lows, the bottom end of a ...
Here are the next potential support decisions to watch in SPX cash. Note that the current decline is only sim...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.