Fate of Fiscal Cliff Turns on the Election

Fate of Fiscal Cliff Turns on the Election

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Hours before President Obama and former governor Mitt Romney held their second crucial debate last night, a Democratic and Republican lawmaker squared off in their own mini-debate on how to handle the massive spending cuts and tax hikes that are set to kick in early next year unless Congress and the president intervene.

Democratic Rep. Allyson Schwartz of Pennsylvania and Republican Rep, Peter Roskam of Illinois, offered opposing views on how to reduce the budget deficit without tumbling over the fiscal cliff during a forum at the Newseum in Washington, D.C. While the two lawmakers differed on many points, they agreed that the outcome of the presidential election will largely determine how the White House and Congress will handle the year-end fiscal crisis, Market Watch’s Aimee Chen reports.

“It is my hope that we can forgo the drama around the fiscal cliff… and move this debate into tax reform,” Roskam told the audience. “But the Nov. 6 election is going to be incredibly consequential in terms of the energy that comes out of the election and the trajectory of what the public wants.”

Meanwhile, the Republican senator from Florida, Marco Rubio, told Bloomberg’s View on Tuesday that the fiscal cliff may not be such a big deal if Mitt Romney is elected because the markets would allow a grace period of “a couple of months to get President Romney on the ground to work on it.” Rubio said that if Obama wins, however, “we’ve got a real scenario on our hands here in terms of avoiding the short-term problem and then – how do you pivot from that to get to a long-term solution.”

Expanding on that point, Wells Fargo Chief Macro Strategist Gary Thayer wrote in the banking giant’s investment strategy report on Monday,: “Both parties are not ready to compromise yet… because neither party knows if it has to compromise. The outcome of the election will determine which party will control Congress and the White House. If one party sweeps the election, there will be no need to compromise. Therefore, neither party is willing to make a deal before the election results are clear.” - Read more at Business Week 

Silver Lining for 5 Defense Contractors - Despite all the teeth gnashing over the possibility of $500 billion worth of defense cuts as well as massive layoffs as part of sequestration next year, five major defense contractors see some positive signs down the road, according to the stock market analysis website Seeking Alpha: 

• Lockheed Martin, the defense industry giant, says that regardless of whether the automatic spending cuts are blocked, its earnings per share (EPS) are expected to increase from 6.3 percent per year to 7.2 percent per year for the next five years.
• United Technologies (UTX), which produces aerospace products and manufactures military and commercial helicopters, also sees a silver lining. The company says its average annual rate of EPS will jump to 11.5 percent, from the current 8.2 percent. 
• Raytheon (RTN), which has enjoyed high rates of dividend increases averaging 14 percent per year over the past five years, anticipates those rates will remain steady.Raytheon, the world's sixth largest military contractor, manufactures high-tech missiles, advanced radar systems, defense electronics and missile-defense systems. 
• Northrop Grumman (NOC), which produces aircraft and high-energy laser and reconnaissance systems, says its stock is yielding 3.2 percent on a low payout ratio of 28 percent. The company recently signed a $108-million contract to update the Air Force's fleet of B-2 stealth bombers.

General Dynamics says its stock is currently yielding 3.1 percent on a low payout ratio of 30 percent. The company – the fourth largest defense contractor – has just received an order for the purchase of two-channel digital radios for infantry rucksacks and vehicles worth about $250 million. - Read more at Seeking Alpha

Global Fund Managers Fret Over Cliff - While global fund managers see some positive signs in the global economy, they’re becoming more concerned over the potential impact of the fiscal cliff. According to the Bank of America Merrill Lynch fund manager October survey, three quarters of fund managers believe the fiscal cliff isn't priced into equities or macroeconomic data sufficiently, MarketWatch’s Barbara Kollmeyer reports. The survey showed that the fiscal cliff was the number-one tail risk for fund managers. - Read more at Market Watch

Cuts Would Slash Hiv/Aids Prevention - HIV/AIDS prevention advocates are bracing for the worst-case scenario if sequestration strikes early next year, which would mean millions of dollars slashed from prevention services and thousands of HIV positive people left without access to life-saving medication.

On Tuesday, HIV/AIDS prevention advocates released a report outlining how     sequestration cuts could hamper both the national and global effort to combat HIV/AIDS. The National Alliance of State and Territorial Aids Directors reported that the programs hanging in the balance include the AIDS drug assistance program, which provides medications to low-income individuals with HIV. That program would be cut by $77 million, leaving some 15,708 people without access to medication. Here is what cuts to some other programs would look like:

• $28 million from the CDC’s HIV Prevention program
• $9.7 million from HIV surveillance programs
• $5.4 million from enhanced HIV testing
• $1.6 million from viral hepatitis prevention

“Sequestration will undermine everything we’ve done to accomplish the National HIV/AIDS Strategy goals of reducing HIV incidence and death,” said Chris Collins, vice president and director of public policy at the Foundation for Aids Research.

For more news on the approaching fiscal cliff, follow us on Twitter @Fiscalcliffnote.


Brianna Ehley is the former Washington Correspondent for The Fiscal Times. She is currently a reporter on Politico's health care team in Washington, D.C.