Fiscal Cliff is Causing Businesses to Hunker Down
Subscribe today for Free Enterprise Updates
- Latest business trends and best practices
- News about legislation and regulation impacting business
- Business how-to articles from industry experts
- Commentary and interviews with newsmakers in business and politics
The effects of the approaching fiscal cliff, automatic tax increases and spending cuts set to take effect in 2013, continue to be felt. The New York Times reports that companies are canceling plans to hire workers and invest in new projects because of fiscal uncertainty from Washington:
More than 40 percent of companies surveyed by Morgan Stanley in July cited the fiscal cliff as a major reason for their spending restraint, [Vincent Reinhart, Morgan Stanley’s chief U.S. economist] said. He expects that portion to rise when the poll is repeated this month.
More from the story:
With many Fortune 500 companies now setting budgets and planning for 2013, chief executives say they cannot afford to hope for the best. Wall Street is also paying more attention: over the last few weeks, chief executives of companies like Honeywell, U.P.S. and Eaton all cited the uncertainty as a threat to earnings in the second half of 2012.
It’s not just big companies who are preparing. Kellie Johnson, owner of a California aerospace company with 200 workers told the NY Times, “Everyone is sitting back and hunkering down.” Her company nixed plans to hire eight people.
According to the Congressional Budget Office, if nothing is done, and we go off the cliff, GDP will fall by 1.3% in the first half of 2013.
This is how “uncertainty freezes an economy,” as Reason’s Nick Gillespie puts it. Uncertainty will increase if Washington continues to dawdle. The result will be an economy that continues to crawl along, or worse we go into a recession.
To avoid the cliff, Congress and the administration should agree to extend the 2001 and 2003 tax rates and find appropriate spending cuts to replace the ones scheduled to take effect.
This Times story should be a real-world alert to Washington that their inaction is putting jobs and the economy at risk.