T-10 And Counting

If the tax holiday expires on January 1, 2012, many economists forecast that it could weaken the U.S. economy enough to trigger another recession.

Of course, recessions aren’t good for major stock indexes like the Dow Jones Industrial Average and S&P 500  and would put added pressure on the already beleagured consumer sector.

Overall estimates indicate that GDP could decline by as much as 0.4% if Congress doesn’t extend the cuts which are scheduled to expire on New Year’s Day.

As usual, the problem lies in Congress which can’t seem to agree on anything or how to pay for the $120 Billion the extension would cost.

Without an extension, taxes could rise between $1000-$2,000 on the average worker which would leave less money for iPhones to support the tech sector or for home mortgages or car loans from the still struggling banking sector.

With a still slow growing economy, the loss of the payroll tax holiday could put the economy periously close to flat line, or “stall speed.”

Anothe big issue in this debate is the proposal to extend jobless benefits for long term unemployed Americans as well as a proposed changes to the alternative minimum tax that has blossomed from a tax for the “rich” into a tax for almost everybody.

The argument, of course, remains what it has been for the last few months, gridlock between the Tea Party and the Democrats about how to pay for any new or extensions of any current spending programs.  The Senate wants a two month extension to get into the New Year while the House is pushing for a one year deal. The issue is further complicated by Holiday vacations with the Senate already closed and many House members  heading home for the Holidays.

Bottom line: President Obama has stayed in town instead of joining his family in Hawaii and Congress should do the same.  The health of the economy depends upon a successful outcome of this matter.

Disclaimer:  Wall Street Sector Selector actively trades a wide range of exchange traded funds (ETFs) and positions can change at any time.