What impact will fiscal cliff have if no deal is reached?
How will the market react?
- Duration 4:46
- Date Nov 23, 2012
How will the market react?
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-- talks on the looming fiscal cliff are set to resume after the Thanksgiving holiday remember the clock is ticking until automatic spending cuts and tax hikes.
For every American take effect.
Last Friday President Obama met with top lawmakers including house speaker John Boehner.
Both sides claimed that well they're willing to compromise they claim that but they are at odds over tax increases for high income earners.
Well now a lot is at stake if no deal is reached in time -- Congressional Budget Office predicts that.
The economy would be thrown back into a recession for the first half of next year.
It could also increase unemployment by two million.
Even the Pentagon has warned that spending cuts there would devastate the country's national security joining us now is Kyle -- founder of -- -- capital management LLC.
Happy Thanksgiving to you and your family always nice to see you -- also they've got to make a deal don't -- Rick they have to I mean you highlighted here the congressional.
Budget office estimates I mean if in fact it deals not made they estimate that the first quarter of 2013.
We would have a 4% dip in you know the overall economy so.
That coupled with unemployment I think Democrats and Republicans.
Have to come together to mold and fortify some plan whether that be eliminating tax loopholes.
Cutting -- tax rates a bit.
And say you know cutting spending as well.
-- -- cutting tax -- you mean raising tax rates what do you mean I'm sorry excuse me.
Raising tax rates a bit so.
I think that you're raising tax rate debate will be OK for the overall market place and stock market place.
But you know if you raise tax rates too much I think at the same time.
We can have severe problems with the private sector.
Not wanting to hire because they did the -- -- insecure about what their tax bill is going to be at the end of 2013.
Without any clarity they will back off hiring.
The Fed chair says make a deal here.
And the economy looks to be in very good shape as -- this is the converse that if if no deal is struck we know.
We know what happens we jump off the cliff if the deal is struck though something that everybody can feel.
Relatively good about even though everybody's gonna feel a little bit of pain.
What could that mean theoretically for the overall economy.
Well I think if there's a reasonable deal struck for the overall economy then.
We also you know you gotta keep in mind Rick as well as we have a credit rating in this country that has been hurt.
And if in fact the -- not met.
That our credit rating could be heard as well as well so I think the deal is met.
We have -- I think it'll be temporary in nature to see the effects of the overall marketplace but I think.
That we will be fine as long as it's if it's within reason.
We're both parties come together and all of these different issues are negotiated in a very fair and balanced way and in that way I think the marketplace will react you know just fine.
I want to go back taxes for a minute because a lot of trial balloons are being floated it seems like the Republicans as a whole are trying to come up with some kind of a unified position.
On where they stand in regard to taxes and you're hearing a lot of different messages here.
The Democrats have said President Obama ran for reelection on a promise to bring the tax rates back to where they were door in the Clinton years.
And talk to us about that if we worried -- revert to those numbers what would that mean in what would be an acceptable number as far as you're concerned Kyle.
Well I think you know again you got to remember Rick we're talking about different tax rates as well so.
For the viewers I mean.
You know their income tax rates there are dividend income tax rates so if the dividend tax rates are dramatically increased.
I think you're gonna have significant problems with people.
Even entertaining owning some of the bigger dividend paying stocks in the economy the johnsons and johnsons of the world the Philip Morris is of the world some of the big staples in the American economy.
Would be at risk of people just pulling their money away from that because they're getting paid a nice dividend so after tax in all of a sudden doesn't become so nice.
But I think.
If in fact we dramatically increased tax rates we don't do a lot with spending.
And we eliminate significant tax loopholes you know that could spin -- into a situation where people get very.
Protective about their capital they don't go out and hire people we have a obamacare issue was well that's gonna affect you know businesses across the United States.
So you could see the entrepreneur -- and the private business owner.
Getting very protective about their capital.
There's going to be a deal I think I think there's going to be the I don't really look I feel really good about it -- the founder of Harrington capital management good to -- Kyle thanks so much for your time.
Happy holidays you -- when it.