In economics, “delta” means change and “I” stands for interest rates. Our goal is to provide you with solid economic news that can help explain changes in the economic environment not only affecting your business but providing you opportunities to take advantage and stand apart from your competition.
Just when you think American politicians couldn't possibly be held in lower esteem, get ready for a new political battle coming in the fall. And this one, while not widely reported in the press, could get even uglier.
The Budget Control Act of 2011
was unceremoniously signed into law by President Obama on Aug. 2, 2011. This legislation increased the debt ceiling
immediately, while forcing a new bipartisan group of lawmakers to form the Joint Select Committee on Deficit Reduction
. They are tasked with recommending a deficit reduction package by the end of the year, before automatic cuts are enacted.
But the most contentious issue presented by this act is what budget baseline should be used for the purpose of measuring any deficit reduction.
If current law is used as the baseline, tax increases would count toward the deficit reduction goal only if they exceed the tax hikes already scheduled to be implemented in 2013. Remember, the Bush tax cuts
(which have been extended through 2012), will be expiring. So if nothing is done, tax rates will increase.
Everything else being equal, higher tax rates would increase federal government revenue and reduce the deficit. But current law does not allow this reduction to be included as a true deficit reduction.
Generally, fiscal conservatives would like the law to be followed, while the administration would like to follow current policy. If current policy is used as the baseline, any tax increase, even those already scheduled to take effect, could count toward the total.
It seems like another round of gridlock will be coming soon, as the newly formed Joint Select Committee on Deficit Reduction debates and argues over this key issue — which can be worth trillions of dollars
in either actual or perceived reductions.
What we may have thought was a solid solution to deficit reduction when the president signed this act appears to be another example of "kicking the can down the road.”
What does this mean for our business? Due to the continued volatility in the markets
, client angst will continue and guarantees will remain extremely important for many months to come. Whether the guarantees you provide come in the form of annuities
or other types of insurance, clients will continue to remain conservative in their approach to protection and savings.
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