As the presidential elections draw near, the nation’s debt woes are coming into clearer focus—and Bank of America-Merrill Lynch Global Research warns that the “fiscal cliff” is bigger than most market observers imagine.
The fiscal cliff, off which U.S. taxpayers may have to leap on Jan. 1, 2013, if the Bush tax cuts expire, is seen as being the inevitable consequence of Washington lawmakers’ infighting unless President Obama and Congress honestly confront this deadline in an election year.
Further, according to BofA-Merrill’s analyst team at a midyear press conference on Wednesday in New York, any positive budgetary effect of the tax increases would be overshadowed by the growing burden of the U.S. debt ceiling as spending and hiring decisions are put on hold and the election heightens partisanship.
U.S. GDP Could See 4.5% Shock
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But if lawmakers don’t act, U.S. GDP could see a 4.5% shock, warned Senior U.S. Economist Michelle Meyer.
“In the second half of 2012, the headlines will really be focused on the debt ceiling and the Bush tax cuts,” Meyer said. “We think the economy is slowing faster than most forecasts on the Street.”
BofA-Merrill’s view is for real GDP growth of 1.9% in 2012 versus consensus expectations for 2.1%, and for only 1.4% real GDP growth in 2013 versus the consensus of 2.4%.
In particular, Meyer pointed to battleground areas of contention including $180 billion in Bush tax cuts, a $120 billion payroll tax cut, debt ceiling deadlines of $110 billion and $40 billion, another $40 billion in extended unemployment insurance and $20 billion in taxes for the Patient Protection and Affordable Care Act that the Supreme Court upheld Thursday.