The enduring impact of the fiscal cliff
The Commerce Department said Thursday that income in the U.S. jumped 2.6 percent — the largest increase in eight years. Consumer spending also edged up 0.2 percent. But both numbers were from December, when two dreaded words pervaded news headlines — fiscal cliff.
Adolfo Laurenti is deputy chief economist at Mesirow Financial. He says the income increase we saw at the end of the year was “almost entirely due to special factors, namely early bonuses and special dividends.”
“In other words,” he explains, “it was just a form of tax planning from high income earners ahead of the expected jump in tax rates that were envisioned during the fiscal cliff negotiations at the time.”
Laurenti says concerns over the federal debt ceiling are also to blame for the reductions in federal spending we saw last month.
And it won’t stop there, he says. There’s a fight brewing over automatic spedning cuts and the debt ceiling.
“I think there’s been a pervasive damage done to the economy by the uncertainty,” Laurenti says. “You would expect that policy would contribute to confidence and instead it’s adding to volatility.”
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