Fiscal Cliff Hogwash

I don't claim to know it all, but when I read JLL reports projecting increased growth and the benefits of the fiscal cliff, I have to wonder if as an industry we only see the trees and not the forest. Which also happens to be on fire.

Core markets (D.C., Chicago, L.A., New York, Atlanta, San Fransisco, etc) that are seats of industry and goverment will almost always do well. And there are smaller markets, like Savannah, that have the real estate throttle wide open.

The problem is that articles glossing over the fiscal cliff, Patient Protection and Affordable Care act, Up-Eurs Zone volitility, etc. make a key error. They presume that decreased uncertainty will equal increased economic growth. Such is not the case.

In his acceptance speech Obama did reduce uncertainty and make some very specific tax proposals. In particular, he promised to:

• Raise the top marginal income tax rate to 39.6%.
• Raise the top short-term capital gains tax rate to 39.6%.
• Raise the top long-term capital gains tax rate from 15% to 20%.
• Raise the top tax on dividends from 15% to 39.6%. There will also be an additional 3.8% tax on dividends as of January 1.
• Replace the alternative minimum tax with the "Buffett Rule." That means the highest income-earners will pay a minimum 30% tax rate on wages, interest, dividends and capital gains.
• Raise the estate tax rate from 35% to 45%.

Every day bits of "Obamacare" are translated into Treasury code and released to the public. These new rules are not reported by media, but their effects are. Layoffs, decreased hours, diminished bonuses, hiring freezes are now daily reports.

In unrelated news, inflation has ticked up, jobless claims are up, poverty rates are spiking.

How can going over "the fiscal cliff" possibly help commercial real estate or the economy as a whole?

The authors gush "Continued low interest rates will prompt people to buy!" True, but lending standards are still tight because banks don't want to lend money if they can't make a decent profit. They'd rather keep the cash in excess reserves for the Fed to pay them interest on.

"Less uncertainty in healthcare means more real estate deals!" I've lost two medical office deals due to the new certainty of taxes and regulation in the last month.

Let's get real about the fiscal cliff: there won't be one. Obama owns this budget deficit now. He must act on it or his legacy will be mud. When has Congress ever had a problem compromising to let federal spending continue?

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

Ga. economy forecasted to stall, Athens to sputter

Summary: Political uncertainty in Washington and Atlanta is causing the economy to be cautious now and reserved in the near future. Return here for an update on the Port's activity on September 6th! Create your own fiscal cliff parachute with income producing property!

Key Quotes:  

Political uncertainty is stalling the Georgia and U.S. economies at a time when the power of the state’s second-largest economic engine — its ports — is losing strength, one prominent forecaster warned Wednesday.

Also released Wednesday, a Federal Reserve survey shows business professionals in the Southeast are expecting inflation to rise. 

Both corporate and consumer confidence has been shaken by questions about the election and what Washington will do about coming tax increases and deep spending cuts known as the “fiscal cliff” triggered by congressional failure last year to reduce the federal deficit.

Georgia-based military contractors and installations are bracing for the sting of the cuts.

Rajeev Dhawan, director of the Forecasting Center, said rising oil prices and falling demand for exports add to other factors to push the “pause” button.

“The impact of the slowing global economy already is being felt in Savannah, where growth has decelerated sharply in the past six months, and where port traffic and future expansion will take a hit in coming months,” he said. 

Dhawan is forecasting 1.1 percent job-growth rate for Georgia and an unemployment rate stuck near 9.2 percent for the next two years. 

Read the full article at Ga. economy forecasted to stall, Athens to sputter

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga