The Fiscal Cliff is looming. Negotiations between President Barack Obama and House Republicans have been going on all day, and though it seems the negotiations are heading toward some kind of agreement, the possibility of losses any automatic cuts will trigger is still present.
While the deal expected today is more than likely to end up just patching over the government’s budgetary problems, it is reassuring the market. If such a deal does not come into being this afternoon, and the series of automatic spending cuts and tax increases continue to fire, there will almost certainly be a recession in the United States.
The Defense Industry: The Fiscall Cliff cuts would see the Pentagon’s budget reduced by $55 billion for 2013. That’s a cut of about 9% from the defense industry’s expected American revenue for 2013. That means contracts being cut, and job losses.
Investors: We’ve already discussed the effects of the coming changes in capital gains tax on Apple Inc. (NASDAQ:AAPL) shareholders. The tax increases resulting from the fiscal cliff include changes in the way in which dividends are taxed.
Those changes, which have resulted in several companies, including Wal-Mart Stores, Inc. (NYSE:WMT), Las Vegas Sands Corp. (NYSE:LVS), and Tyson Foods, Inc. (NYSE:TSN) offering a special dividend, or early pay out in order to avoid the scenario.
Investors will lose big if the fiscal cliff cuts trigger. The increased taxes, combined with the likely recession, makes the first quarter of 2013 hellish ground for investors if the fiscal cliff changes are triggered.
Congress: Should the country fall into recession, there will be a public relations battle between Congress and the President to establish blame. That’s a battle Congress is already losing. The institution already suffers from extremely low opinion on poll ratings, this would make that situation worse.
Whether or not this would result in any real changes when the next round of election comes up in 2014 is unpredictable, but there will certainly be a backlash if Congress gets the blame for a new recession.
Health Care Industry: The healthcare industry, awaiting its Obamacare boon, will suffer massive losses if the fiscal cliff cuts are triggered. Both Medicare and Medicaid are scheduled to be cut, resulting in lower revenues for 2013.
Companies like Pfizer Inc. (NYSE:PFE), Community Health Systems (NYSE:CYH), and HCA Holdings Inc (NYSE:HCA) are destined to lose, and lose big, in the fiscal cliff. These firms will be one of the worst hit in 2013, if the cuts come into effect.
Across the board, the fiscal cliff will hurt America. If the cuts fire, the economy will fall into recession, unemployment will probably jump again, and the equities market will more than likely crash. Taxes will be higher, and there will be less opportunities and prosperity to go around. Let’s hope a deal appears before negotiations close. If not 2013 will be bleak.