San Francisco, CA (PRWEB) November 30, 2012
The U.S. fiscal cliff has been increasingly in the news since the summer and since the presidential elections has dominated almost any discussion of the economy, business, and real estate. “Fiscal cliff” is the term being used to describe the expiration of tax cuts (personal taxes, estate tax, capital gains tax, payroll tax, Alternative Minimum Tax) and the $600 billion in federal budget cuts that will occur on January 1, 2013 if changes are not made to existing laws. The combination of extreme tax increases and significant federal budget cuts are expected to create significant problems for the U.S. economy, figuratively pushing it “over a cliff”.
The fiscal cliff was created during the debt ceiling negotiations of 2011. Lawmakers put provisions into the debt ceiling agreements that require automatic spending cuts if lawmakers cannot find a solution to reduce the U.S. deficit by $1.2 trillion over the next 10 years. In addition to the spending cuts, some $330 billion in tax increases will take effect as the Bush era tax cuts expire. It is these dramatic tax increases which are expected to have the most impact on the commercial real estate market.
Many investors and businesses are worried about the implications and direction of the negotiations in Washington. Genesis Capital highlights three basic ways basic ways in which the issue can be addressed.
1) Do Nothing and Go Over the Cliff: Congress is unable or unwilling to act by the deadline and allows the tax cuts to expire and federal spending to be cut across the board. This has been projected to lead to a decrease in consumer spending, panic in the financial markets, and decreased employment and business activity. It is also assumed that the U.S. would sink back into a recession. All of these factors would have negative impacts on the commercial real estate market. Vacancies would probably rise, construction would halt and investment could dry up.
2) Postpone and Push the Cliff Into the Future: Congress could pass legislation that would extend the deadline and buy themselves more time to reach a resolution. The majority of economists feel that the tax increases and spending cuts could be delayed for as long as 9 months into 2013. This could possibly allow time for more rational policy negotiations and would soothe the financial markets. However, it would also create more uncertainty for businesses and consumers alike. If the fiscal cliff is postponed in this way, the commercial real estate market could likely continue on its current slow growth trajectory.
3) Make a Deal That Avoids the Cliff: Lawmakers in Congress and the President could work frantically over the coming month to hammer out a deal that is attractive to both Republicans and Democrats. This would require extensive discussions and huge compromises from both sides to become a reality. There are currently bills in both the House and Senate that address the fiscal cliff, but each is quite different. Can compromise across both aisles occur?
Genesis Capital continues to monitor the situation for its investors, and will gauge the impact on commercial real estate purchases, investment and lending.
About Genesis Capital
Genesis is a dynamic nationwide network of seasoned commercial real estate and financial professionals that believe in the potential of today’s market. Our members source assets directly from Banks, Servicers, Lenders and Private Clients. The members of Genesis have participated in commercial real estate transactions totaling nearly $7 billion.