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What Is the Fiscal Cliff?

Fiscal Cliff
A SpeciAl Supplement of the economicS Brief Big Picture: COMMenTAry By jOSePH BrUSUelAS The so-called fiscal cliff, the confluence of $607 billion in expiring tax and expenditure policies set to take effect at the end of 2012, poses a significant risk to the U.S. economic outlook. Unless lawmakers reach a compromise to extend some or all of the temporary tax cuts and postpone mandatory spending cuts, the hit to the economy would translate into about 4 percent of gross domestic product. The current Bloomberg consensus forecast is for a growth rate of 2 percent in 2013, with 1.9 and 2.3 percent rates of expansion in the first two quarters of next year. Should Congress delay acting

09.25.12

Tuesday

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The term fiscal cliff is shorthand to describe the mix of $607 billion in U.S. taxes and spending that are scheduled to expire on Dec. 31, 2012. The mix of tax and spending cuts include the Bush era tax cuts, the 2010 Obama tax holiday, partial expensing of investments and the onset of tax provisions to support the implementation of the 2010 Affordable Health Care Act. Accompanying theses tax measures are spending changes that include the expiration of emergency unemployment benefits, a scheduled reduction in Medicare payment rates, and the start of what is referred to as automatic sequestration or across-the-board cuts in discretionary and defense spending under the 2011 Budget Control act. FiScal calendar
Date event

Fiscal Cliff Poses Significant Risk to U.S. Outlook

until early 2013 to address these issues, growth will likely slow to less than 1 percent during the first half of next year. Persistance of financial gridlock would probably push the economy into recession in the first half of 2013. The expiration of the temporary measures needs to be placed in the broader context of long-term deficit and debt dynamics faced by the U.S. federal government. Policy choices made in the near-term will affect the economy for years to come. If not addressed, current debt and spending dynamics will probably lead to a reduced growth path, placing at risk
Continued on next page

Estimated Impact
tax ChangeS (BIllIOnS) Tax Changes Bush Tax Cuts 2% Cut in Payroll Tax Partial Expensing of Investment Tax Provisions: Affordable Health Care Act Impact of Tax Changes Gross Impact on Spending Changes Less Secondary Effects on Economy Net Impact on Fiscal Deficit Potential Hit on GDP SPenDIng ChangeS (BIllIOnS)

10/01/2012 10/03/2012 10/10/2012 10/24/2012 10/26/2012 11/02/2012 11/06/2012 11/13/2012 12/07/2012 12/12/2012 12/14/2012 12/31/2012 01/02/2013 01/04/2013

Fiscal Year 2013 Begins Pres. Candidates Debate Domestic Policy Congress Reconvenes FOMC Meeting Q3 2012 GDP Estimate October Non-Farm Payrolls Report Election Day Lame Duck Congressional Session Begins November Non-Farm Payrolls Report FOMC Meeting Congress Scheduled to Adjourn First Round of Fiscal Provisions Expire Second Round of Fiscal Provisions Expire 114th Congress Begins

-221 -95 -65 -18 -400 -607 47 -560 4%

Fiscal cliFF and debt Primer Bloomberg economist Joseph Brusuelas fiscal cliff and debt primer package is available as a powerpoint slide presentation here:
http://goo.gl/Ho3KF

Automatic Sequestration Expiration of Emergency Unemployment Benefits Scheduled Reduction in Medicare Payment Rates Other Revenue Increases/Spending Reductions Impact of Spending Changes
Source: Congressional Budget Office

-65 -26 -11 -105 -207

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bloomberg brief | Fiscal cliff

big picture jOSePH BrUSUelAS

continued from page 1

16 Spending as a Percentage of GDP 14 12 10 8 6 4 2 0 1962

As Entitlement Spending Rises, Net Fixed Business Investment Falls

Net Business Fixed Investment Mandatory Entitlement Spending

Actual

Forecast

sions to support the implementation of the 2010 Affordable Health Care Act. Accompanying theses tax measures are spending changes that include the expiration of emergency unemployment benefits, a scheduled reduction in Medicare payment rates, and the start of what is referred to as automatic sequestration or acrossthe-board cuts in discretionary and defense spending under the 2011 Budget Control act. FISCal PaTH Government spending will need to be brought into alignment with revenues over the next several years to bring the primary budget spending, excluding net interest on the debt into balance and to stabilize the long-term debt of the U.S. to ensure the health of the economy and viability of current entitlement programs. Through the first 10 month of fiscal year 2012, the federal government has run a deficit of $975 billion, indicating that the U.S. is likely to run a deficit in excess of $1 trillion for the third consecutive year. For economists, deficits are a flow concept, referring to the relative shortfall between taxes and outlays in a specific period of time. The deficit is on pace to come in at about 8 percent of GDP this year, slightly narrower than 8.2 percent at the end of fiscal year 2011. The level of debt is a stock concept, showing the total accumulation of debt over time. Total public debt currently stands at around $15.2 trillion, which translates to a total debt-to-GDP ratio of more than 100 percent. research conducted by Kenneth rogoff and Carmen reinhart indicates that persistent debt-to-GDP ratios of greater than 90 percent tend to be associated with drags on overall growth of 1 percent. Stabilizing the overall debt is a key component of longer-term fiscal sustainability that includes not only moving the primary budget towards balance, but also reducing the debt-to-GDP ratio while implementing policies to boost nominal growth and keep interest rates low. Currently, the federal government is running a primary deficit, netting out interest payments on past debt, of roughly 6
Continued on next page

1967

1972

1977

1982

1987

1992

1997

2002

2007

2012

2017

2022

Source: Bloomberg, CBO

expenditures on vital social programs and, over time, crowding out private sector borrowing that funds the gross private domestic investment necessary to boost productivity and living standards. Periods with greater investment as a share of GDP are highly correlated with both faster economic growth and rising living standards. One risk to the U.S. economy is that rising entitlement spending will require the government to borrow from the finite amount of capital held by private savers, thus squeezing out private firms that need the capital to expand businesses and increase productivity. Dollars spent on entitlements dwarf those spent on discretionary items such as education, and tower over net fixed business investment, which is partially responsible for greater productivity, business expansion and rising living standards. U.S. federal spending on mandatory entitlements will probably increase from $2 trillion in 2012 to $2.8 trillion in 2017. Spending on entitlements as a share of GDP increased from 4.9 percent in 1962 to an estimated 13.5 percent in 2012. In contrast, net fixed business investment will probably decline to 1.7 percent in 2012 from 3 percent in 1962. This special edition of the Bloomberg economic Brief intends to present the substantial short-term risk to the outlook within the context of the long-term chal-

lenges faced by policy makers to help facilitate decision-making by investors. ECONOMIC IMPaCT The economic impact of permitting the combined tax and spending measures to expire is stark. First, firms are already paring back investment and hiring, and households have stepped up their rate of savings, most likely to smooth out consumption to account for reduced after-tax income next year, and thereby contributing to the current slow pace of growth. Second, real GDP will likely show negative growth rates of minus 2.2 percent in the first quarter and minus 1.3 percent in the second quarter, with a modest recovery in the second half of the year. The result will be higher unemployment, falling taxable income and a mild recession in early 2013. COMPOSITION OF THE ClIFF Although the gross impact of the fiscal cliff is about $607 billion, once one accounts for the impact of lower spending on the fiscal deficit, the net impact is roughly $560 billion. The mix of tax and spending cuts include the Bush era tax cuts, the 2010 Obama tax holiday, partial expensing of investments and the onset of tax provi-

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bloomberg brief | Fiscal cliff

big picture
continued from page 2

percent of GDP. nominal growth over the past year is roughly 3.9 percent and long term borrowing costs are about 1.5 percent. Assuming these levels, the federal government would be able to run a primary budget deficit around 3 percent and stabilize the debt-to-GDP ratio at near 100 percent. This implies that in coming years the government will have to pare back annual spending by about $500 billion to ccomplish these goals. One reason why the U.S. Federal reserve has committed to keeping the policy rate effectively at zero until late 2015 is the lack of fiscal action, or comprehensive tax and entitlement reform, to boost overall economic activity and employment. essentially, policy gridlock in Washington has put the Fed is in the uncomfortable position of attempting to buy time for the federal government to get the U.S. fiscal house in order. The simple exercise above to identify spending reductions necessary at current low interest rates necessary to stabilize the debt-to-GDP ratio at 100 percent also shows that an increase in long-term interest rates would require even more fiscal restraint in non-discretionary, defense and entitlement spending. Policy BrinkmanshiP Should current policies remain in place, the gap between revenues and spending

will grow, creating a much larger problem and forcing policy makers to make politically unpalatable choices. There will probably be little movement to address the economic consequences of the fiscal cliff until after the november U.S. presidential election. This will leave policy makers the one-month lame duck session of the 112th Congress between nov. 13 and the currently scheduled day of adjournment on Dec. 14 to reach a decision before the scheduled tax increases and mandatory spending cuts will take effect jan. 1. Given political polarization, these issues may well not be addressed until the start of the 113th Congress on jan. 3, 2013. regardless of the outcome of the election and the composition of the new Congress, slower growth and weak hiring and consumption are likely for the remainder of this year and early 2013. Fiscal cliFF and the Fed In his Sept. 13 press conference, Federal reserve Chairman Ben Bernanke indicated that the Fed does not possess tools strong enough to offset the effects of a major fiscal shock. Given the Feds track record during the financial crisis, and through the recovery and anemic expansion, the central bank will probably seek to lengthen its maturity extension program and restart purchases of long-term government securities ahead of any potential

fiscal shock following the election. Since September 2011, Operation Twist has resulted in a shift of the weighted average maturity of the Feds portfolio holdings to 9.5 years from about 6 years. With U.S. gross domestic product in the third quarter of 2012 tracking near 1.3 percent, external demand slowing, and the manufacturing sector looking increasingly vulnerable, there is little on the horizon that suggests a major boost to growth during the final three months of the year. Thus, it is probable that the Fed will use the Dec. 12 meeting of the FOMC to announce, at a minimum, that it will lengthen its maturity extension program to help mitigate the effects of a shock to the economy should lawmakers fail to resolve the fiscal cliff. Should the outcome of the upcoming election be further polarization in Washington, therefore increasing chances policy makers may allow a fiscal shock, the Fed may entertain the idea of another round of unsterilized long-term Treasury purchases to complement its open-ended mortgage-backed security acquisitions. A failure by policy makers to address the fiscal cliff in 2012 may provide an opportunity for fixed income investors to profit well in advance of the beginning of next year. The Fed currently holds roughly $1.28 trillion in long-term Treasuries and $931 billion in Federal agency mortgagebacked securities debt.

2012
10/1 10/5 10/10 10/24 10/26 11/2 11/6 11/13 12/7 12/12 12/14 12/31

2013
1/2 1/4

Fiscal Year 2013 Begins

Congress Reconvenes

Q312 gDP estimate

election Day

november non-Farm Payroll Report

Congress Scheduled to adjourn

Second Round of Fiscal Provisions expire

September non-Farm Payroll Report

FOMC Meeting

October non-Farm Payroll Report

lame Duck Congress Begins

FOMC Meeting

First Round of Fiscal Provisions expire

114th Congress Begins

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bloomberg brief | Fiscal cliff

vIeW FROM the StReet

A collection of views on the fiscal cliff from around Wall Street.

If the fiscal cliff isnt addressed, as Ive said, I dont think our tools are strong enough to offset the effects of a major fiscal shock, so wed have to think about what to do in that contingency.

Ben S. Bernanke, Federal Reserve chairman

We expect S&P 500 will fall sharply following the election when investors finally recognize the serious possibility that the fiscal cliff problem will not be solved in a smooth fashion. Goldman Sachs assigns a one-in-three likelihood Congress does not address the situation before Jan 1st. In contrast, our conversations suggest the vast majority of clients expects the fiscal cliff issue will be addressed during the lame duck session of Congress.
Goldman Sachs Global Economics, Commodites and Strategy Research team

We could face substantially more restrictive fiscal conditions if federal budget negotiations fail to resolve the issues surrounding the so-called fiscal cliff. And for both the global situation and the U.S. fiscal cliff, there is a lot of uncertainty over what the eventual outcomes will be.

We think the Fed will buy $85 billion a month ($45 billion in Treasuries, as it is doing until year-end in Operation Twist, and $40 billion in the new MBS purchases) for some time, and that amount will be fairly insensitive to new data. Its possible the Fed will adjust that total in December, given the scheduled expiration of Operation Twist, but that may be too soon to judge the likely outcome of the fiscal cliff at year-end. While the limit on spending authority will be imposed at the beginning of the year, the actual reductions in spending will occur over the course of the year and into subsequent fiscal years. Once again, only a fraction of the impact occurs in the first month or so, although expectations of the cutbacks can affect the behavior of government contractors and others in advance of the actual cuts.

Renaissance Macro Research, Sept. 24

Charles Evans, Federal Reserve Bank of Chicago

"In a base case scenario, lawmakers delay tax hikes and recast spending cuts, leaving roughly a percentage point of fiscal drag and a relatively benign near-term outlook for modest growth. Nonetheless, with general government debt already topping 100%, this outcome leaves the U.S. dangerously exposed to an abrupt loss of market confidence and a fiscal crisis as near-term debt continues to outrun GDP."

Reductions in taxes or increases in spending in 2013, relative to what would occur under current law, would have near-term economic benefits but would add to the already large accumulation of government debt. Because current policies would ultimately lead to an unsustainable level of federal debt, policy makers will need at some point to adopt policies that will require people to pay significantly more in taxes, accept substantially less in government benefits and services, or both.
Congressional Budget Office, An Update to the Budget andEconomic Outlook: Fiscal Years 2012 to 2022

Chad Stone, chief economist, Center on Budget and Policy Priorities

In our view, the U.S. economy is being hit with an uncertainty shock because of the looming fiscal cliff. Our forecast assumes that the uncertainty shock slows growth to 1.0 percent in the fourth quarter of this year.
Bank of America Merrill Lynch, U.S. Economics report, Sept. 24

Citigroup Economics, Nathan Sheets, Robert DClemente, Peter D ntonio A

Mr. Bernanke himself has stated in no uncertain terms that monetary policy will be unable to offset the negative economic impact of the fiscal cliff. He is therefore warning that the fact that the Fed has used all its available tools does not mean the US economy will escape unscathed from a plunge over the fiscal cliff.

Richard Koo, chief economist, Nomura Research Institute

Some clients in recent meetings have argued that the fiscal cliff will not happen because politicians in Washington know that the economic fallout will be too great. We agree that the full fiscal contraction implied by current law (about 4 percent of GDP) will be avoided. But we have emphasized two points. First, there is likely to be some fiscal hit, on the order of 1-2% percent, no matter the outcome of the election. Second, uncertainty regarding the Cliff is already undermining the economy and it could very well culminate in financial market riot points as deals to avoid the Cliff and raise the debt ceiling are done at the 11th hour, and with great acrimony.
BCA Research, Sept. 24 Weekly Report

The prospect of a continued division of power in Washington and consequent political gridlock increases the risk that the Bush tax cuts are allowed to expire, raising the risk that the dividend tax rate rises substantially relative to that on capital gains. With utility stocks much more exposed to this risk than other defensive assets, such as bonds, we recommend that investors lighten their positions in the sector until the relative tax treatment of dividends and capital gains is resolved in the aftermath of the November elections.
Hugh Wynne, senior analyst, Sanford C. Bernstein

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bloomberg brief | Fiscal cliff

gROWth anD JOBS

Growth
3.0 2.5 2.0 1.5 1.0 Percentage 0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.2 Bloomberg Consensus Forecast Bloomberg Brief GDP Estimate With Fiscal Cliff 2.0 1.9 1.9 1.5 1.3

jOSEPH BRUSUELAS, BLOOMBERG ECOnOMIST

Growth and austerity

U.S. Economy Faces Growth Cliff
2.3 2.7 2.0

9 8 7 6 5 4 Percentage 3 2 1 0 -1

Growth Under Austerity (GDP Percentage Change)

Gramm-Rudman-Hollinds Defict Control Acts Bush Era Deficit Reduction Act
1987 1985 1990

1997 1983 Clinton-Gingrich Era Deficit Reduciton

-1.3

-2 -3 -4

Q3'12 Source: Bloomberg

-2.5

Q4'12

Q1'13

Q2'13

Q3'13

-5 Greenspan Social Security Commission 1980 1984 1988 1992

1996

2000

2004

2008

2012

Source: Bloomberg

GDP CHWG INDEX<GO>

Further political gridlock following the U.S. election that results in no action taken to phase in the tax and spending changes will almost surely send the economy into a recession in the first half of 2013. The combined increase in taxes and spending would hit consumers across all income brackets and likely result in large job losses in the public sector and in private sectors dependent on government outlays such as the domestic defense industry starting in january. According to Bloomberg Government {BGOV<GO>}, automatic sequestration my result in approximately $55 billion in defense and non-defense accounts from the Pentagon.

This is not the first experience that the federal government has had with periods of austerity. During the reagan, George Herbert Walker Bush and Clinton administrations, periods of bi-partisan fiscal restraint were seen. Solid growth in the reagan and Clinton eras contrast with slower growth and an eventual slide into recession during Bush the elder administrations. The major difference between those eras and our current period is historically slow growth occuring at the same time as high political polarization. These conditions are not conducive to a grand bargain to put the nations fiscal path on a more sustainable footing and avoid a likely recession in 2013.

Transfer Payments from Unemployment Insurance

Unemployment Insurance Transfer Payments Declining
180 160 140 120 Billions U.S. Consumer Income From Unemployment Insurance

Defense Spending
800 700 600 500 Billions
400

Defense and Non-Defense Outlays

Defense Outlays Non-Defense Outlays

Actual

Forecast

100 80 60 40 20 2005 2006 2007 2008 2009 2010 2011 2012

300 200 100 0 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017

Source: Bloomberg

Source: Bloomberg, CBO

The burden of adjustment caused by the significant fiscal restraint that would take place next year would be spread around the public and private sector. The end of emergency unemployment benefits alone accounts for $40 billion in reduced government spending. The Congressional Budget Office estimates that each dollar of unemployment insurance generates $1.55 in additional economic activity. A 2010 labor Department study indicated that during the recent recession unemployment benefits boosted employment by roughly 75,000 jobs.

According to Bloomberg Government {BGOV<GO>}, automatic sequestration may result in about $55 billion in defense and non-defense accounts from the Pentagon that account for roughly half of the $110 billion resulting from the Budget Control Act of 2011. Based on current statutes, only a new law that terminates automatic defense cuts can prevent sequestration. One result of major cuts in defense spending would likely be the loss of tens of thousands of defense contractor-related jobs. Many of these jobs are held by middle and upper middle class income earners critical to supporting current levels of household spending. Defense cuts are not without precedent. In 1986, the Pentagon absorbed a 4.6 percent cut in spending.

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bloomberg brief | Fiscal cliff

taxeS anD SPenDIng

jOSEPH BRUSUELAS, BLOOMBERG ECOnOMIST

The policies that put the fiscal path on a sustainable footing will likely involve a mixture of spending cuts and tax increases over the next decade or two. In any debate, the most contentious portion of it will revolve around how the burden of adjustment is distributed throughout the economy while supporting growth and reducing unemployment.

Marginal Rates Pre- and Post-Cliff

45 40 35 30 Percent 25 20 15 15 15 10 25 28 28

Global Corporate Income Tax Rates

45.0
39.6 36 33 35

Marginal Tax Rates Poised to Increase

2012 (Pre Fiscal Cliff) 2013 (Post Fiscal Cliff)

40.0 35.0 30.0 Percent 25.0 20.0 15.0 10.0 5.0 0.0

Central Government Corporate Income Tax Rate Combined Corporate Income Tax Rate

Increased Corporate Taxes Unlikely to Encourage Growth

31

10
5

Lowest (Eliminated) Source: IRS, CBO

Source: OECD Tax Database

The sunset of the Bush tax cuts and the expiration of the Obama tax holiday, as well as a variety of tax hikes and spending cuts, will boost marginal tax rates across the board, collapsing the six tax brackets into five. Using a conservative multiplier, the end of the $220 billion Bush tax cuts would result in a reduction in consumer spending of roughly $200 billion or 1.3 percent of GDP. The end of the Obama tax holiday would produce a $95 billion hit to household spending, subtracting 0.6 percent from GDP.

Increased taxes on corporations may not be a good way to encourage growth. While taxes on individuals have come down substantially over the past 30 years, that is not the case when it comes to U.S. statutory corporate tax rates. The 2012 combined government corporate tax rate in the U.S. is 39 percent, trailed by japan at 38 percent, France at 34.4 percent and Germany at 30.2 percent.

Federal Government Revenues and Outlays

5.0 4.5 4.0 3.5 Trillions 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017

Discretionary Spending
Discretionary Spending, Mandatory Outlays and Net Interest
Forecast

CBO Projects Tax Receipts to Rise

Receipts Outlays

Actual

3.0 2.8 2.5

2.3

Discretionary Outlays Mandatory Outlays Net Interest Outlays

Actual

Forecast

2.0 Trilliions 1.8 1.5 1.3 1.0 0.8 0.5 0.3 0.0 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017

Source: Bloomberg, CBO

Source: Bloomberg, CBO

Debt-to-GDP levels will need to be stabilized at near 100 percent, whether through a decline in outlays, by finding ways to increase revenues without slowing growth, or some conbination of the two. Based on the most recent CBO study, tax receipts are projected to increase 41 percent between 2011 and 2017, while a 21 percent rise in spending is forecast.

Without a consensus among lawmakers on how to reform entitlement spending or enact comprehensive tax reform, discretionary spending will bear roughly half the burden of the automatic sequestration set to take place due to the Budget Control Act of 2011. Based on data compiled by Bloomberg, in fiscal year 2012-2013 the Departments of labor, education and Homeland Security would all see reduced outlays on a year-over-year basis.

09.25.12 www.bloombergbriefs.com

bloomberg brief | Fiscal cliff

POlItICS anD POlICY

jOSEPH BRUSUELAS, BLOOMBERG ECOnOMIST

The fiscal cliff is set to occur within 60 days of what is shaping up to be a rancorous national election. Given the depth of the Great recession and measures taken to prevent it from becoming a depression, the importance of politics and policy has increased in relevance for investors.

Competing Visions
26.0 Federal Spending as Percentage of GDP 25.0 24.0 23.0

Investors Troubled by Policy Uncertainty

300

Federal Spending as Percent of GDP Poised to Increase

Obama Plan CBO Baseline CBO Alternative Ryan Plan

Policy Uncertainty
Policy Uncertainty Index 2008-Present Average=164.3 1985-2007 Average=95.2
European Sovereign Debt Crisis US Debt Ceiling Dispute

Actual

Forecast

250
9/11 Balanced Budget Act 1St Gulf War Clinton Era

Banking Crisis/Obama Elected Lehman Bros/TARP

Index

22.0 21.0 20.0 19.0 18.0 17.0 1990 1994 1998 2002 2006 2010 2014 2018 2022

200

2nd Gulf War Fed Rate Cuts, Stimulus LTCM

150

Black Monday

100

50 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Source: CBO, OMB, House Budget Committee

Source: policyuncertainty.com

Fundamental policy disagreements among politicians regarding the size and scope of government is the primary cause behind the unusual confluence of so many tax and spending items coming to a head at one time. Using the CBOs baseline forecast as a benchmark, federal spending as a percentage of GDP is likely to increase from 24.1 percent in 2011 to 24.4 in 2022.

Investors and some economists have pointed to a lack of clarity regarding the future path of taxes to support current levels of public expenditures, and the impact of stepped-up regulatory activity on overall business conditions. An index of policy uncertainty and its impact on output, investment and employment developed at Stanford University and the University of Chicago indicates a clear lack of direction in addressing persistent deficits. The level of debt likely foreshadows slower growth and subdued employment conditions ahead.

33 Senate Seats in Play

U.S. Senate Seats In Play
1 6
7

28 House Seats in Play

U.S. House Seats in Play
28
Toss Up Lean Democratic Lean Republican Lean Independent Safe Democratic Safe Republican 6 Safe Independent

12

19

10 14

Toss Up Lean Democratic Lean Republican Likely Democratic Likely Republican Safe Democratic Safe Republican

193

9 1 3

159

Source: Roll Call

Source: Roll Call

Based on an estimate by roll Call magazine, of the 33 seats up for grabs, seven are at risk during the upcoming election, six held by Democrats and one held by republicans. Presently, the Senate is comprised of 51 Democrats, 47 republicans and two Independents.

roll Call indicates that there are 28 House races that currently rate as a toss-up. There are two open seats and one new seat in Arizonas 9th district due to the shift in population that has seen Congressional seats migrate from the northeast to the south and west. Presently the House is comprised of 192 Democrats, 240 republicans and three vacancies.

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bloomberg brief | Fiscal cliff

legISlatIve CalenDaR

BLOOMBERG GOvERnMEnT, COnGRESSIOnAL BUdGET OffICE

Whlle Congress has passed a six-month stopgap spending bill to keep federal agencies running past the end of the budget year, the elections and into the spring, work remains on fiscal cliff-related legislation during the brief post-election lame duck session. Below are the bills that initially lead up to the fiscal cliff and a list of new bills introduced to reverse fiscal cliff-related factors.

Bills that gave rise to the fiscal cliff - past Congresses

tOPIC limiting the reach of the amt lower taxes lower taxes expanded tax credit and deductions 2% cut in payroll tax; doc fix tax provisions of the affordable care act, including higher rates on high income tax payers reconciliation bill; 2003 tax cuts extended sequestration; increase in debt ceiling PUBlIC laW # 111-312 107-16 108-27 111-5 112-96 111-148 109-222 112-25 12/17/2010 6/7/2001 5/28/2003 2/17/2009 2/22/2012 3/23/2010 5/17/2006 8/02/2011 BIll # h.r. 4853 h.r. 1836 h.r. 2 h.r. 1 h.r. 3630 h.r. 3590 h.r. 4297 s. 365 SPOnSORS PaRtY Joint republican republican democrat republican democrat republican democrat vOteS In FavOR % RePUBlICan 50% 79% 96% 5% 50% 0% 94% 65% % DeMOCRat 50% 21% 4% 92% 50% 100% 6% 35% vOteS agaInSt % RePUBlICan 24% 6% 6% 100% 69% 84% 7% 41% % DeMOCRat 76% 94% 92% 0% 31% 16% 91% 59%

Bills introduced to reverse fiscal cliff factors - 112th Congress

tOPIC tax benefit extensions tax benefit extensions tax benefit extensions tax benefit extensions tax benefit extensions tax benefit extensions tax benefit extensions tax reform StatUS, 2012 8/1 - Passed house 7/17 - introduced 7/18 - introduced 7/25 - Passed senate 7/19 - introduced 7/23 - introduced 8/28 - reported by committee 7/30 - introduced BIll # h.r. 8 s.3393 s. 3401 s. 3412 s. 3413 s. 3417 s. 3521 h.r. 6169 h.r. 5652 h.r. 6365 h.r. 3662 s. 2065 SPOnSORS PaRtY republican democrat republican democrat republican republican democrat republican republican republican republican republican vOteS In FavOR % RePUBlICan 93% 0% 100% 100% 100% % DeMOCRat 7% 98% 0% 0% 0% vOteS agaInSt % RePUBlICan 1% 96% 2% 8% 6% % DeMOCRat 99% 2% 98% 92% 94% -

Re-directing Sequestration to cut 5/10/12 - Passed house other programs Re-directing Sequestration to cut 9/10/12 - introduced other programs Offsetting Sequestration with reduced federal hiring Offsetting Sequestration with reduced federal hiring 12/14/11 - introduced 2/2/12 - introduced

FINANCIAL CONDITIONS WATCH: WILL LOW INTEREST RATES ENCOURAGE EXCESSIVE RISK TAKING, AGAIN?
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