US reaches Fiscal Cliff Deal, but Uncertainty Remains
Higher taxes on the wealthy will not make a significant dent in consumption as they are likely to be largely met through lower saving. Despite the protestations of many Republicans, it is also difficult to see how an increase in the top rate of income tax from 35% to 39.6% will stifle American enterprise. However, the decision to allow the 2% payroll tax cut to expire will hit many families and is set to raise $95billion, about 0.6% GDP.
When combined with other measures such as higher dividends, capital gains taxes and the temporarily delayed spending cuts, we are looking at a 2013 fiscal tightening of about $160 billion or 1% GDP. Whilst marginally less than we had factored into our forecast, the scope for upside risk to our 1.9% US GDP growth forecast for 2013 is limited.
Despite the latest agreement, fiscal uncertainty remains with little progress being made on entitlement reform where Republicans and Democrats remain as divided as ever. Lifting the debt ceiling by end February/ early March and then going on to strike a longer term deal (a “Grand bargain”) promises to be a major challenge. Against this backdrop, the fiscal uncertainty which has weighed on longer-term investment decisions is set to persist. We believe this will weigh on growth as spending on durable goods and capital equipment is held back.
Important Information:
The views and opinions contained herein are those of the Keith Wade, Chief Economist & Strategist, and may not necessarily represent views expressed or reflected in other Schroderscommunications, strategies or funds.
This newsletter is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument mentioned in this commentary. The material is not intended to provide, and should not be relied on for accounting, legal or tax advice, or investment recommendations. Information herein has been obtained from sources we believe to be reliable but Schroder Investment Management North America Inc. (SIMNA) does not warrant its completeness or accuracy. No responsibility can be accepted for errors of facts obtained from third parties. Reliance should not be placed on the views and information in the document when taking individual investment and / or strategic decisions.
Past performance is no guarantee of future results.
Sectors/regions/companies mentioned are for illustrative purposes only and should not be viewed as a recommendation to buy/sell.
The information and opinions contained in this document have been obtained from sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties.
Schroders has expressed its own views and opinions in this document and these may change.
The opinions stated in this document include some forecasted views. We believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee that any forecasts or opinions will be realized.
Schroder Investment Management North America Inc. (“SIMNA Inc.”) is an investment advisor registered with the U.S. SEC. It provides asset management products and services to clients in the U.S. and Canada including Schroder Capital Funds (Delaware), Schroder Series Trust and Schroder Global Series Trust, investment companies registered with the SEC (the “Schroder Funds”.) Shares of the Schroder Funds are distributed by Schroder Fund Advisors LLC, a member of the FINRA. SIMNA Inc. and Schroder Fund Advisors LLC. are indirect, wholly-owned subsidiaries of Schroders plc, a UK public company with shares listed on the London Stock Exchange. Further information about Schroders can be found at www.schroders.com/us.
Schroder Investment Management North America Inc. is an indirect wholly owned subsidiary of Schroders plc and is a SEC registered investment adviser and registered in Canada in the capacity of Portfolio Manager with the Securities Commission in Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Quebec, and Saskatchewan providing asset management products and services to clients in Canada. This document does not purport to provide investment advice and the information contained in this newsletter is for informational purposes and not to engage in a trading activities. It does not purport to describe the business or affairs of any issuer and is not being provided for delivery to or review by any prospective purchaser so as to assist the prospective purchaser to make an investment decision in respect of securities being sold in a distribution.
Further information on FINRA can be found at www.finra.org
Further information on SIPC can be found at www.sipc.org
Schroder Fund Advisors LLC, Member FINRA, SIPC
875 Third Avenue, New York, NY 10022-6225
© Schroders Investment Management
