The Independent Market Observer

12/18/12 – Now We’re Talking Price

Posted by Brad McMillan, CFA®, CFP®

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This entry was posted on Dec 18, 2012 11:14:03 AM

and tagged Fiscal Cliff

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In the fiscal cliff debate, both sides have started to take off the gloves and trade offers. Boehner threw in the first bid, offering to accept higher rates on incomes over $1 million, and Obama said that he might be willing to move the bar above the $250,000 he’d been holding at. Obama’s most recent bid is for a $400,000 threshold. So we’re getting much closer.

On spending cuts, there’s been less progress. The President has ignored a Republican proposal to increase the Medicare eligibility age to 67. Not no progress, though, as Obama did accept a GOP proposal to use a different inflation formula for benefit calculation. This is important because it will result in big cost reductions (and benefit reductions) over time.

We see movement here, and it does seem to be real movement because these concessions will hurt both sides politically. This is where it gets interesting: Can the Speaker and the President bring their troops along? So far, there have been isolated outbursts on both sides, but, in general, lawmakers who are willing to be quoted are grousing while staying signed on. The consensus is building that there’s a deal to be had here, and that it should get done.

Nonpolitical factors also support a deal. The first is lawmakers’ desire to get home for Christmas. The second, which reinforces the first, is the Connecticut tragedy, which seems to be eliciting a decline in partisanship. Just in the nick of time, the good of the country is factoring into the decision-making process.

Today, there’s reason to be optimistic about a deal. Even the debt ceiling extension is in play, which would be a major accomplishment if it gets done. This would be a short-term solution, but it would buy valuable time for next year, when we’ll need to discuss a longer-term way to address the pending entitlements spending crisis.

One step at a time, though. One step at a time.

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