#1. If you wanted change or big new initiatives, you’re going to be disappointed.
After a long campaign full of dubious promises, we appear to be right back where we were before the election. Barak Obama is still the President. The Senate is still in the hands of the Democrats. And the House of Representatives is still in the hands of the Republicans.
Everyone returning to Washington made promises to their constituents and they’ll try to keep them. Republican congressmen promised not to raise taxes. The President promised to raise them on high-income earners. Roughly half of all voters voted against each party. Neither the President or Congress is likely to compromise (especially members of congress who must face voters again in two years). So prepare for more grid lock in Washington.
#2 Expect a Big Battle Over the Fiscal Cliff.
Last week, the Treasury Department issued a statement warning that the nation’s debt limit will be reached by the end of the year. There’s little chance that Congress will agree to raise the ceiling without some spending cuts. And there’s little chance that the President will do that without increased taxes. A stalemate could result in default, a government shutdown, a credit downgrade, and when it’s all over—higher borrowing costs for everyone. Or maybe they’ll all come together and fix this. Riiiight.
#3 Higher Taxes and More Regulation on Businesses.
This one is going to hurt. The President has promised higher taxes on high-income individuals making $250,000 or more. Because many small businesses are taxed at the individual rate of the business owner, taxes are almost certain to go up for many small businesses. Taxes are an expense. And higher expenses mean less money to invest or spend.
According to the U.S. Chamber of Commerce, over the last four years, the government has issued 11,327 pages of new regulations. The Small Business Administration estimates that the cost to business of all Federal regulations is more than $1.7 trillion each year. Now there are rumors of a slew of new regulations from government agencies like the EPA that will impact business expenses like energy costs.
In addition, the impact of Obama Care is about to ramp up. These additional costs and regulations are already forcing many businesses to hire only part-time workers and to limit hours for other employees in order to reduce the additional cost. All of which leads to…
#4 A Slow Recovery for Jobs.
When company expenses rise (see above) they have less money to invest in growth, new initiatives, and jobs. We’re likely to see a continuation of the current trend of job creation. Slow. Which means we may not get back to full employment by the end of the President’s second term. The progress will be slowed even more if another recession hits.
On the Bright Side…
It’s not all pessimistic. The government has less control over the economy that we are led to believe by newspapers and politicians. And the lack of jobs has forced a lot of people into more entrepreneurial ventures, many of which will succeed and grow. There is a ton of potential in the economy that is just waiting to take off under the right conditions. Business-friendly policies will help it get going. Which is what we hope for most (with some reservation) from the returning administration.