In what may be the single most significant factor affecting the very near future of the U.S. economy, the oft-referred to “fiscal cliff” is looming on the horizon. We asked some experts in the field of agricultural economics to provide their take on how agriculture, in particular, could be influenced. We are sharing their responses in a three part series. Here is the final response from Doug Tenney, with Leist Mercantile in Circleville.
Fiscal cliff. By now you have at least heard the term. But what is it? It is not a new sports drink or power bar, or a new sports car. It is not a viewing point along the ocean or the name of a popular diner. “Fiscal cliff” refers to the dual combination of increased taxes and cuts in government spending (both total at least $500 billion) to take place when we click the calendar to 2013. It is not something that suddenly popped out of nowhere to now grasp daily news headlines. Its effects from a number of pundits range from, “it’s hype, nothing to worry about,” to “it will certainly put the economy back into recession in 2013.”
A recession of any kind is not welcomed as the country’s recovery from the recent recession has been anemic and very disappointing. Compromise between both sides of Congress and the President is needed to avert the potential plummet from the cliff. However, the quirky reality is that compromise is what landed us in the predicament currently before us.
Back in late 2010, Congress put together a compromise to resolve the debt ceiling crisis as it raised the debt ceiling (again) to keep the government
operating. That compromise detailed deep spending cuts to go into effect Jan.1, 2013. In addition, the Bush tax cuts and temporary reductions in payroll taxes would both end. Both will expire on Dec. 31, 2012. Congress put together its compromise but never expected it to become reality. They kicked the can down the road. The thinking at that time was that the budget cuts were so drastic, it would be distasteful to all. They never intended that the “cliff” would take place. Congress and the President expected better deals would be worked out at a later time prior to once again having to raise the debt ceiling.
The likely reality of the cliff is that the longer the uncertainty goes on, the markets could go down — perhaps a lot. Uncertainty causes jitters. Small businesses will suffer as they see costs go up and revenues decrease. Whether it is stocks, or commodities like grains, the fall off the cliff would very likely be negative to prices. Analysts have suggested that as things stand mid-November, without further compromise, taxes for the average American would increase $2,000 to $3,000 in 2013 and beyond. The amount of increased taxes reflects the same amount that consumer spending would decrease. Consumer spending is the engine driving the U.S. economy.
The fiscal cliff issue is also affecting other legislation. Until Congress comes off the cliff and resolves the fiscal cliff issue, any chances of getting a new farm bill passed before the end of this year are zero. Producers continue to be alarmed and concerned at the lack of a new farm bill. Some have been suggesting a one-year extension take place.
Unless Congress takes drastic action in coming weeks, the fiscal cliff will be in the news cycle for weeks or months to come.