Cliff Rescue: Walking Away From The Edge

Aaron Task, Debra Borchardt and Shannon Pettypiece rate the new deal.
13:44 | 01/02/13

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Transcript for Cliff Rescue: Walking Away From The Edge
Your latest in business and finance. -- -- Watch live coverage of the opening bell on ABC news now ringing the bell this morning have -- Eight bio pharmaceutical company formed in 2013. Calling it. -- opening -- this Wednesday January 2. Hello everyone I'm -- -- in New York we have an expanded report this morning. As we begin trading for the new year and take our first steps back from the edge of the fiscal -- Joining me Aaron task editor in chief and our partner Yahoo! finance. -- -- chart from the street. And Shannon -- piece from Bloomberg News thanks -- everyone. For joining us this morning Aaron I'm gonna start with you futures were sharply higher this morning on the deals and the fiscal -- how big of a game could we see today. Well good morning tell you it -- we got a big bounce here at the opening bell I think at some relief at the house did vote for that bill last night. Could we have a couple of 18300 points today -- -- but I think most people would say this is a temporary sigh of relief it's also the first of the year first trading day of the year. -- lot of money coming in especially after the -- unexpected strength we saw on 2012. So a lot of factors at play I wouldn't read too much into any one day of trading and but it looks like it's going to be pretty good day which is better than the opposite. Certainly India and our Deborah let me ask you technically we didn't go over the cliff on New Year's -- how did lawmakers -- that little bit -- -- we sustain any injuries. Well we have only went over the cliff and really all they dealt with was the taxation part of the deal we haven't really dealt with the spending. And with the tax hikes that we got that it really only covers two weeks' worth spending so. We really just kicked the can down the road and we've been traded in one fiscal cliff for essentially for fiscal clips coming up this year. You're not too impractical with the chief Joseph Shannon anyone's -- asked well what happened. If there's -- let's talk about the opening moments here what are we seeing stocks and I mean already signed up about a hundred points is this what you would expect high. It is what. We would expect whether or not anyone's really happy with this deal are agrees with that he -- the policy of the markets hate uncertainty and this removes a little bit of uncertainty there's at least more certainty today than there was -- the market closed on Friday so -- -- in this rally there was -- large expectation that if we went over the -- the stock market ago over at the clip as well. That didn't happen so big sigh of relief but I think -- -- is right on that don't expect this rally to go on for a long time. Because as ever -- just -- we've got -- more fiscal cliff coming so. Might be good day today but who knows what's miles. Like -- certainly good morning up about a 190 already as we speak all right. So -- looks of the cornerstone of this deal it's basically. Ending the bush tax cuts for individuals making 400000 dollars a year or more and families making 450 the 450000 dollars or more to -- Significant is this change. Well I I would flip it around it's extending them for everybody who's under four and 50000 dollars in household so. You could really look at this is a victory for Republicans and people who prefer lower taxes and human the bush tax cuts were first enacted. There was Hawkeye resident gnashing of teeth -- Democrats wanted to get rid of them as soon as possible that's why they had to sunset which is extended a couple times anyway so. I really think that for most most Americans they just got a permanent extension of the bush tax cuts which if you like lower taxes and who among us doesn't is a really good thing. That and I'm certain that a lot of people would agree there generally say -- by backing away from the fiscal clip we've avoided. Sharp tax increases but the payroll tax cut is disappearing that means workers. We'll still see their paychecks shrink by 2% -- this. Possibly -- the country back into a recession. That alone is not going to be enough to put us back into a recession if all of these tax cuts had expired if we had seen these big cuts. That would have been economists say at least enough to put us into recession but not alone on this payroll tax -- it is gonna shave a little bit of growth off of GDP it could be. 1% the half a percent to -- what economists you talk to if you're making 50000 dollars. You're gonna see about eighty dollars less a month in your paycheck you're -- those big earners making a million dollars. -- could be over a 150000. Dollars a year that's taken out -- your paycheck so it is going to be significant but it's not going to be anything catastrophic. A deal breaker there are it Debra I -- it touched on them and we talked about earlier. The removal of uncertainty. Is good for the markets but under this -- we do have some tax increases which tend to be bad for the markets. Looking beyond today which affect you think we'll be stronger. I really don't think that the tax increases are going to hurt the market that much. Because that the key thing here is where you going to get any. Growth and income in this market certainly not from the -- side of the market so you're still going to have to look at equities. So I don't think that even though we heard -- gnashing and -- an end and fist pounding. That we're gonna -- that many people walk away from the stock market I don't think that we're gonna have a great market this year as Aaron alluded to. I think that we'll see some bounce here -- -- up through march. And then. What we look at presidential cycles we see that this is the year that normally the market doesn't do so well south. Well the good beginning of 2013 in the stock market but I think we're gonna listen. Can I just gonna set -- a note about your your question about tax increases. So first of all let's remember that the dividend and capital gains increases that were proved we're a lot less. Them would have happened if we've done over the Clinton -- -- you know the -- dividend tax rate would have been over 40%. If we hadn't had this -- yesterday so that that is another reason why the markets are. Rejoicing in the east this morning because the tax increases for investors wasn't as bad as it could have been. So again yet tax increases which is a bad thing but not as bad as people -- fearing so that that is a positive there. So we ask you -- you think more companies might move away from issuing dividends in the future. Well obviously we had a huge push of special dividends at the end of last year this you know we'll certainly put a cap on that. I don't think it's really gonna dampened. Any corporate plans to do you dividends that were already in place because we think again. You know going from 15% to 20% is is it's a hit but it's not as big -- -- hit. Then going from 15% to 38 and changed within effective rate over 40%. That the estate tax might affect. You know plans for dividends from those companies that are really. Family -- where the dividend -- out and and you know estate planning is a huge issue but for the most companies I don't think it's gonna have a big effect. Is -- do you want to weigh in at all on this state planning the estate tax that did go up when it now 40%. It it did go look for states over one million dollar loan and -- -- the big he -- -- going to be 19 was going to be 59. And it is significant amount but I think that what you also have -- in this. -- category in this group of people. You know they can afford accountants they can afford advisors so I think that they will -- -- find a way around it or find a way that it is not as painful. The channel let me ask you because one thing that this deal would not address is. Is the spending cuts over -- health care need you cover health care. What how do you see this battle shaping up. Well everyone says that Medicare is gonna be right on the table number one in areas -- people look to make cuts now Medicare is very politically sensitive and people been talking about making cuts to Medicare. For years now hasn't happened is it gonna finally happen now. Everyone seems to be saying it is that you know will just have to see but Medicare accounts -- about 5% actually Medicare and Medicaid -- the government health insurance. The programs account for about 5% of GDP that's set to grow to about 10% of GDP and 25 years. This is the elephant in the room they're finally needs to be some cuts made to this if we want to address this deficit issue. And specific cuts that people want to make on the Republican side. They want the beneficiaries of Medicare to heart start picking up some of the -- -- -- paying higher premiums increase in the eligibility age. Other members of congress want to go after hospitals they think there's too much fat and waste and inefficiency in the hospital so they're looking to target there. Other areas like rural hospitals teaching hospitals could also get cut but this -- in the health care industry health -- stocks. There's going to be an enormous amount of attention over the next two months but what's happened with Medicare and yet need right volatility in those sectors of. -- -- and the -- and the deal that was cut does prevent Medicare. Does prevent cuts in Medicare reimbursements to doctors correctly and I know that was a big sigh of relief from the medical community. Yes this was there have seen a -- then they doomsday scenario for doctors there have been 27% cut to physician payments. Under this old formula back from the ninety's that was set up if this had happened with the fiscal cliff of these payments would have been cut. Basically individual physicians are just that one not taking Medicare patients anymore. And that didn't -- Medicare patients would have had to do a lot less choice of doctors so. That's why this is -- the few things that actually got into this deal that's. Bill that we just had absolutely and several academic also looming hasn't been talking about is of course the debt ceiling which we've just reached again. What will happen if lawmakers don't strike a deal on the -- technically we have reached that debt ceiling. This week south we really cannot incur any more -- not one more dollar of debt at this point. So really the clock is ticking and as we said -- -- Sharon -- agreed we really treated at one clips were forklifts so. The clock is ticking they have to deal with these spending cuts. So we've got debt ceiling. That's going to have to be dealt with by the end of February march -- looking and no eight weeks. That we got sequestration -- march we've got the farm bill in September and we got that employment benefits. In December so. Really it's critical right now that they deal with the spending because we really can't go to the debt markets anymore at this point but it seems that. You all here are in agreement that the fiscal cliff but nothing compared to what might come down the road in just a few months so -- what are we all need to worry the most about here. But dysfunctional Washington still -- mean you know Deborah said before like no one is cheering this do you know it feels good about it and I think it partially because. We've seen our elected officials. Shoot shoot themselves in the country in the foot I mean this was something that congress set up it was -- -- -- so horrible that they would have to deal that they didn't deal that for the very last minute -- they dealt with it. -- that with a small part of -- kick the can down the road with a into the road is is right in front of us because as -- We were just talking about -- -- -- -- entitlement reforms on the table they didn't deal with any spending cuts. They didn't of corporate taxes there's still you know so much more work to do and then you have the debt ceiling looming over us the sequestration -- leader for two months. So we're going to be having this same conversation only more it is in the next few weeks and again so the market's happy today but I think at some point they're gonna turn -- -- -- These are the -- people put us into this mess do we really have faith that they're gonna get us out of. I just do want to point out however that the market is really happy right now it's a very -- 200. And to -- -- 128 points. Do you think we can see this continue or this is just an early morning euphoria. Well. Continue for the short term markets do anything and look there's an argument to be made that you know there's so much known about this debt -- stuff that. -- maybe the markets already priced today and I don't happen to believe that but you can make that case and look what what's going on in Japan and China are gonna. You know move the markets as well spending and Europe are taking it back on their feet that's gonna help -- there's so many factors that that dictate what the markets do you. For this moment there is relief that the uncertainty has been resolved but it's very temporary. So I wouldn't be buying into this market certainly not -- -- up dale like today and expectation that these kind of gains are gonna continue for very long. And -- come after you spent fourteen years at Bear Stearns he's double lot of contact with the 1% there are they feeling about all this. I'm you know like I mentioned before today -- you know. Had a lot of teeth gnashing their -- very upset about it very angry because they were cutting into. Their world and that they were going to have to pay more but ultimately this is a group that certainly can afford higher taxes. And they're -- their accountants they're gonna hire their advisors and -- find a way around the as the oldest but the money elsewhere cell. I don't think I'm I'm -- -- cry big tears that I. The shuttle and -- that way a way and a -- yeah -- the Pacific summit CEOs that I talked to and we talked at Bloomberg -- over the past few months. The that leave -- of the wealthiest Americans are gonna have to pay more we understand the government is out of revenue. You know they need to get it from somewhere and the most logical place that they're looking is from these high income earners the so I think. This shouldn't come of the huge shock to any -- -- today and they probably are just seeing -- movie and positioning themselves to build the deal with. And I would say to that I think most the people but I've -- to agree. Let's -- more -- taxes -- I feel like you're spending my money wisely and that's the thing that's got everyone so upset is the spending cuts weren't undressed like -- said. And we're willing to pay more in taxes to -- us you know where your spending. So you think pretty much everyone is onboard with the increase in revenue as well as wise spending cuts. Exactly right. All right Aaron task from Yahoo! finance -- report chart from the street and Shannon petty pace from Bloomberg News thanks to all of you for joining us this morning.

This transcript has been automatically generated and may not be 100% accurate.

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