One of the phoniest risks out there is the so-called “fiscal cliff” in the US. If Washington does nothing before the end of the year, US taxes will soar and across-the-board spending cuts will be put in place.
But Washington won’t do nothing. It will do the minimum, as it almost always does.
It will wait until the lame-duck session (after the November 5 elections) to make any material changes, almost assuredly.
What are the likely scenarios? If Obama wins, all the Bush tax cuts will be extended until the end of 2013, like they were last year and the year before.
If Romney wins, the Bush tax cuts will likely be extended for a shorter period while more comprehensive tax simplification is taken up, lowering marginal rates while doing away with many deductions.
The sequester that is scheduled to come into force in January unless there is a fresh budget deal would forces 50% cuts in the US defense budget. Virtually every Congressional district across the country would be impacted, so Congressfolk of both parties are strongly incented to cut a deal rather than see cuts hit their districts.
It’s politics, folks. Deals are done when they need to be done and not until. Fretting about the unlikely possibility that a deal will not be struck is mostly a waste of time.
