Local advisors concerned as fiscal cliff nears; some clients selling stocksPublished 10:58am Monday, December 31, 2012
Local financial advisers are concerned as federal leaders are trying to prevent the government from falling off the “fiscal cliff.”
As of this morning, a deal had not been struck, and less than 24 hours remain to prevent a blend of middle-class tax increases and spending cuts from taking effect at the turn of the new year.
The Senate’s top Democrat and Republican leaders met Saturday to work on a compromise, and House and Senate members were called in for a rare Sunday session. The meetings come after President Barack Obama and congressional leaders met Friday.
“We’ve had more concern from clients over this than probably any other issue I’ve seen in the last 10 or 15 years,” said District 27A Rep. Rich Murray, R-Albert Lea, who also owns ISC Financial Advisors.
While Americans — and in turn the world — wait for a decision, Murray said some of his clients are reducing the amount of stocks they’re carrying.
“The markets don’t like uncertainty,” he said.
If an agreement is not reached, Americans at almost every level would be affected.
Unless Congress approves a deal in the waning hours of 2012, Obama administration economic advisers predict that Minnesota’s economy, like that of much of the nation, could shrink by an estimated 1.3 percent in the new year. Most of that would be the result from the tax hit to middle-class workers, who could be expected to spend $3.6 billion less in 2013.
Payroll tax increases of 2 percent would take place immediately, giving a person making $1,000 every two weeks roughly a $20 increase in taxes each paycheck, Murray said.
That 2 percent payroll tax saved a typical Minnesota family of four making $87,000 about $1,700 last year.
While tax rates have received the most attention, they’re not the only sticking point that will be felt in Minnesota. A major Democratic demand is an extension of emergency jobless benefits for about 2 million unemployed workers, 12,200 of them in Minnesota.
On the plus side for Minnesota, the state is a relatively minor recipient of the sorts of federal grants and programs that are subject to “sequestration,” Washington-speak for automatic spending cuts.
Federal procurements and salaries amount to only 1.8 percent of the state economy, far below the national average of 5.3 percent, according to an analysis by the Pew Center on the States.
Even those spending cuts, particularly in defense, are subject to revision as Congress confronts the next looming fiscal crisis — over the debt ceiling — most likely at the end of February.
Hopes now rest on a frenzy of negotiations building on talks among President Obama and congressional leaders.
“It’s by no means a sure thing,” said Sen. Amy Klobuchar, D-Minn., who was briefed on the White House meeting by Senate Majority Leader Harry Reid. “But it was a positive meeting.”
Still, as lawmakers worked behind the scenes, voices of optimism were few and far between. “I am not optimistic we will get anything done,” said Rep. Collin Peterson, a centrist Democrat who was working on a farm bill extension as part of a deal. “But I’m going to be ready.”
Murray said he is hopeful an agreement will be reached but hopes leaders address the root of problem instead of just passing something to push the problem down the road.
“Until we address that, people will be in fear and the market will be in panic,” he said.
“The clock is ticking,” Sen. Max Baucus, chairman of the Senate Finance Committee, said in remarks on the Senate floor Friday as Obama and congressional leaders were meeting several blocks away at the White House. “My message to them is simple. We can do this. We can get this done, and we must.”
Rep. Tim Walz, who has led efforts to force a House vote on a measure that protects middle-class taxpayers, said any 11th-hour deal will need at least some Republicans to come together with Democrats.
“This isn’t a game,” he said. “It isn’t poker. It’s people’s lives.”
— The Star Tribune and Albert Lea Tribune contributed to this report.