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In terms of immediate economic impact, everyone is advising that investors basically ignore the Super-Committee failure, and stay focused on the payroll tax cut extension.If the payroll tax cut doesn’t get extended, that obviously means a serious fiscal drag in 2012. Previously Goldman has estimated it could hurt GDP to the tune of ~0.6%.
Anyway, in their view, this extension, while still likely, just got harder.
Extending the payroll tax cut and emergency unemployment benefits just got harder…
The payroll tax cut and emergency unemployment benefits expire at year end, unless Congress acts to extend them. The most obvious means for extension has been inclusion in the super committee package and failure to reach agreement has reduced the likelihood of extension of these provisions, for two reasons:
(1) offsetting the cost of a payroll tax cut ($110bn/yr) and/or emergency unemployment benefits ($50bn/yr) extension is more difficult to do outside of the super committee process, where “creative accounting” such as the use of war savings would have been more easily tolerated by both parties, and
(2) the political debate is likely to get more acrimonious following super committee failure, which could make it more difficult to agree on other items.