An analysis by The Lending Circle, a division of Sunovis Financial, examines two recent polls concerning business owner's opinions on the impending "fiscal cliff".
The so-called "fiscal cliff" looms: unless a deal is struck to fund the U.S. budget deficit, $600 billion in spending reductions and expiring tax cuts, equal to 4 percent of the gross domestic product, will take place at the start of 2013 under the terms of current legislation. "Fiscal cliff" is the popular term used to describe the situation the U.S. will face at the end of 2012, when simultaneous spending cuts and tax increases go into effect following terms of the Budget Control Act of 2011.
Economist Mark Zandi of Moody's Analytics said recently he believes there is a 15 percent chance Congress will let the country go over the "fiscal cliff" after the November election, leading to a new recession. Zandi calculates that gross domestic product would drop 2.8 percent as a result of our going off the “fiscal cliff.” This large spending cuts could clearly hurt the already fragile economy and rein in nascent growth.
Many small-business executives said they have little confidence that lawmakers and the president will be able to avoid a "fiscal cliff" by December 31. A recent survey by The Wall Street Journal and Vistage International found that 47 percent of small-business owners and chief executives said they don't expect the country will avoid the tax increases or deep spending cuts that would take effect December 31st, 2012 - unless Congress and the President can come to terms.
The survey of 833 business heads was conducted online from Sept. 12 to Sept. 21 and was limited to companies with between $1M and $20M in annual revenue. 62 percent said they favor repeal of Mr. Obama's Affordable Care Act and 94 percent said they offer health insurance to their employees. More than two-thirds of the respondents said they plan to vote for Mr. Romney, versus 19 percent for Mr. Obama. However, only 30 percent of those surveyed believed Mr. Romney would win, while more than half expected Mr. Obama to be re-elected. The survey was taken before the Presidential Debates.
Almost half the respondents said they are willing to pay higher taxes as part of a deficit-reduction program—if that program also includes cuts in spending. Of respondents who identified as Republicans, 37 percent said they would be willing to pay higher taxes if spending were cut.
The uncertainty around the "fiscal cliff" is a real concern for businesses, even very large ones. The CEO Economic Outlook Poll which was released September 26th, indicates further downturn in CEOs’ expectations for sales, capital spending and hiring for the next six months.
Politico wrote in September that none of the top leaders or their aides are in serious negotiations. This leaves the key players simply pointing fingers and praying that voters clarify Washington’s power structure in November in a way that either favors Republican entitlement cuts or Democratic tax hikes. The winners at the ballot box will get to set the terms, the thinking goes, and neither side seems to be giving an inch until then.
A “fiscal cliff” failure would put all businesses at risk.
The Lending Circle, a division of Sunovis Financial, assists borrowers and businesses with their lending needs. The company monitors the pulse of businesses, and factors that can affect well-being and lending ability.