The chances of a deal to fix US budget is getting leaner with every passing day, at least that’s what economists predict. The Congress will return tomorrow amidst the calls for action in the US Senate. Incidentally, the new bill will take effect from the start of next year and will trigger more than $600 billion in spending cuts and tax increases. Many economists fear that this bill, in its current form will cause another recession in US and thereby impact the entire global economy.
John Boehner, the House Speaker is currently arguing to have tax increases for people with an income above $1 million. Boehner and Obama, despite numerous negotiations, haven’t been able to agree into a deal. It has been observed that Boehner is strongly arguing Obama’s decision to impose tax on high earners, whereas, Obama is not ready to accept the cuts to entitlement programs, as sought by Boehner. Thereby, the situation has become even more complicated.
The renowned Republican strategist, Ron Bonjean stated that there is 25% chance that the deal will actually happen. However, he added the odds increase with each passing day as not many days are left. Ron commented that both the Republican and Democrat leaders will like to avoid the fiscal cliff and hence, they may soon chalk something out. Incidentally, Boehner has not met with Obama since 21st December, when Obama left for a holiday in Hawaii.
Amidst this situation, the Standard & Poor’s 500 index has dropped by 0.5% and is at 1419.86 currently. The Dow Jones Industrial Average has also declined by 35.98 points and is at 13103.10 now. The yield on the benchmark 10-year Treasury bond also suffered a drop of 2 basis points.
Many predict that the US policymakers may come up with an interim bill with sort of bipartisan solution on the meantime, to avoid the fiscal cliff. Incidentally, till 17th December, the negotiations between Boehner and Obama were looking positive enough, but, the proposal that Boehner pulled from the House floor on 20th December was a rather stringent one. Obama even threatened to put a veto if the Republicans try to pass the same. According to insiders, both Democrats and Republicans are now considering the chances of coming with a mid-term deal that will suffice partial demands of both the parties.