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Gary Boatman on the economy

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Wednesday, Nov. 14, 2012, 12:01 a.m.
 

Now that the presidential election is over, many of the same questions remain.

Power in Washington is basically the same as the last two years.

The most immediate problem is what happens on Jan. 1, 2013, with the fiscal cliff.

Since reaching its year-high on Oct. 5, the Dow Jones Industrial Average has fallen 795 points.

If Washington acts as usual, the can will be kicked down the road on New Year's Eve.

If that happens, expect the markets to continue to decline.

The fiscal cliff is composed of two separate events:

First, all Bush-era tax cuts will come to an end. That means every taxpayer will pay more taxes. While all of this additional tax revenue going to the government will help with the deficit, it will curtail consumer spending, which accounts for two-thirds of our economy. The economy is already growing slower than last year. This could create a new recession.

The other part of the cliff is massive government spending cuts. Half of these cuts are opposed by Democrats and half by Republicans.

Although we need government spending cuts, this would be too much in one day.

While there will be large cuts in any compromise, the question is how much and to what programs.

There will also be some increases to tax rates, but they come from reducing deductions as much as raising rates.

If the problems are not jointly resolved, there could be a recession and the country's credit rating likely would be reduced.

There are a number of other questions facing the world's economy.

Europe's economy is slowing including Germany's which has been the shining star.

In this country, housing has stabilized a little, but is still very slow.

Corporate earnings are slowing.

If the stock market experiences a correction, people's confidence will lower as their 401k balances go down.

That will put additional pressure on the economy as people reduce purchases.

Several things we know about our economy after the election, health care will stay, but may change some or slow down. The House may not provide money for all programs and both sides know that issues must be solved. Interest rates are likely to remain low, so seniors and others who depend on CDs for income will be hard pressed. Regulations will continue to increase, so the unemployment rate will probably only come down slowly. Extended unemployment benefits will be under pressure.

Many companies will continue to hire only part-time employees because of the higher cost to hire full time workers. We need to find a balance and cooperation in Washington. If the election showed anything, it is that the country has many different divides and there is no major mandate to move in any direction.

As an investor, you should be proactive. Things such as dividends and capital gains tax rates are likely to increase. Not up to the 43 percent possible under current law, but they likely will go up. Maybe you should consider harvesting some of your gains. This must be done before Dec. 31, even though we may not know all of the changes in the tax code. People need to control their taxable income as much as possible. Why pay income on money that you are not spending?

Some investments are more tax efficient than others. Also be careful of risk as stock mark volatility is likely to increase.

Repositioning investments now, if necessary, can help you earn more after tax return and achieve your 2013 financial goals.

Gary Boatman, a certified financial planner who serves as president of the Monessen Chamber of Commerce, is a freelance writer for Trib Total Media.

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