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Fiscal Cliff Compromise

Posted by kdadmin on January 2nd, 2013.

According to Robert Schroeder and Greg Robb from their December 31, 2012 post on MarketWatch, some of the highlights of the Fiscal Cliff compromise include the following:

  1. For households with annual incomes in excess of $450,000 per year:
    1. Dividend and capital gains taxes increase to 20%
    2. Income taxes would be raised
  2. Across the board spending cuts would be delayed
  3. Unemployment benefits would remain extended
  4. The 2% payroll tax cut would lapse
  5. Estate tax on inheritances of more than $5,000,000 would be increased to 40%
  6. Nothing would be done to address the U.S borrowing limit which is expected to cap in February, 2013
  7. Automatic spending cuts of about $100 billion to military and domestic spending would take place in 2013.

The good news is that the market seems to like the deal. The Dow and S&P were up sharply on Monday (12/31) and 2.35% (DJIA) / 2.54% (S&P500) today.

Since the bill garnered enough votes to pass, the likely impact on your portfolios will be:

  1. A gradual increase in your small cap growth stock weightings (and a decrease in bond weightings) over the next 3 to 6 months.
  2. A potential decrease in employer profit sharing contributions (to offset the payroll tax holiday).
  3. A redraw of your estate documents (if your net worth exceeds $5 million).
  4. A further shift of your capital gain and dividend income investments to tax deferred accounts (if you earn $450,000 or more per year).

Honestly, I think the biggest benefit will be that Washington’s direct impact on the market’s volatility will be over, for the most part. I would welcome that. I prefer the idea of “free capital markets” over “politically driven capital markets” in as much as it can be true.

Should you wish to discuss this in more detail, please contact me directly.

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Happy New Year!


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