The Week Ahead: What Lies Over The Cliff?

For the first time in recent memory, the monthly payroll employment report will not be the big news.

The financial media are like one of those dedicated radio stations --- All Cliff, All the Time!

Last week I noted that I might skip this week's WTWA column, focusing on "Cliff notes." Meanwhile, I recommend that my readers follow the contributions of my colleagues in the here for the most recent summary.

This would resolve most of the issues that threaten economic growth. The major tax reform, spending cuts, and debt ceiling would be deferred for 60 or 90 days.

Bearish Outcome

The worst result would be a complete lack of agreement. This would require instant reaction by the new Congress -- the so-called "bungee jump" over the cliff. It would provide a fig leaf for those who would rather vote for tax cuts after allowing the old policies to expire.

My Guess?

As I write this, the insider reports say that there is little progress in the negotiations. Here is what to watch for:

• Senators Reid and McConnell may come up with a compromise that have hated provisions for both sides -- tax rate increases for those earning more than $400K, a capital gains rate of 20%, dividend taxes of no more than 20%, a compromise on inheritance taxes at nearly the current exemption and rate.
• The agreement must satisfy the most conservative Senate elements to avoid a filibuster and procedural objections.
• The House would have to consider the result with little time for amendment. Boehner would be under intense pressure to allow a vote on something with widespread GOP support, despite the Tea Party objections.
• If a vote were to be allowed, my guess is that it would pass in the House with strong Democratic support and possibly a majority of Republicans.
• The key is that the legislation would have passed muster on Sunday with both GOP and Democratic caucuses in the Senate -- before any voting.

If this does not pass muster in the House, the bare-bones Democratic proposal to extend Bush-era cuts for those earning less than $250K will be the agenda.

President Obama will be on Meet the Press Sunday morning. The market did not give him sufficient credit on Friday. Instead of profering his own "solution" he held back his own "Plan B" while giving the key parties one last chance to come together.

If Boehner will not allow a vote on either of these proposals, the GOP will hear from doctors and middle-income folks who will be retroactively subjected to the AMT, as well as businesses who want some certainty.

Summary
There are many ways that an agreement can be derailed. It has all been coming down to this for many, many months. All of the public statements have been posturing.

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We'll soon know....

Written By: Jeff Miller