American business has seen what lies beyond the fiscal cliff and recoiled.
Leaders of some of the country’s biggest companies and financial institutions are mobilizing behind an effort to reach a compromise on the U.S. deficit predicament. Some are even saying they would pay higher personal income taxes as part of the bargain.
Executives are speaking out in public and lobbying lawmakers about the dangers of failing to avert automatic spending cuts and tax increases looming at the end of the year. The more active role is a reflection of anxiety over the economic damage that those measures will inflict.
“We sure know what the consequence will be and it will be awful,” said Lloyd Blankfein, the chief executive of Goldman Sachs Group Inc., in a television interview Thursday. It’s “one of the major ways in which the slow recovery that we have could be completely derailed.”
A day earlier, Jamie Dimon, the chief executive of JPMorgan Chase & Co., told an audience in Washington that it was “terrible policy” to veer this close to the so-called fiscal cliff. The impact has already begun, he asserted. Businesses “start to make decisions at the margin,” he said. “Don’t hire, don’t build, don’t buy.”
The chorus is drawing public attention to the most pressing issue on the legislative agenda for the next president and Congress. In theory, the effort could help create the conditions for a future deal by giving skittish lawmakers comfort that the business community supports compromise – even one that involves higher taxes.
Mr. Blankfein and Mr. Dimon are part of a group of about seventy prominent chief executives who have joined a non-partisan campaign to fix the country’s debt. The initiative has raised $25-million (U.S.) and is ramping up its activities at the local level.
Time is short. After delaying for months ahead of the November election, lawmakers must race to ward off tax hikes and spending reductions that could knock the economy back into recession. Together the steps represent an “unprecedented” $800-billion annual reduction in the deficit, according to a recent Citigroup report. It predicts that over the course of 2013, the squeeze will cause unemployment to rise to 9.6 per cent as gross domestic profit shrinks by 1 per cent.
Some observers believe that the dire consequences guarantee that lawmakers will avert the fiscal cliff measures – or allow them to take effect only briefly before hammering out a deal. Such faith is possibly misplaced, warned Alan Simpson, a former Republican senator who co-chaired a deficit reduction commission.
Investors appear to believe that lawmakers will not drive the country off the fiscal cliff, he said. They “really believe honestly that no Congress could be this stupid, and by God, they can,” Mr. Simpson said in a recent interview on CNBC.
For lawmakers, the challenge is two-fold: producing a legislative fix to skirt the end-of-the-year measures, then striking a broader deal sometime next year to put spending on a sustainable path on the long run.
Business leaders know that both steps will be arduous. “When they’re out there talking about the need for reform, that helps move the ball on things,” said Matt Miller, a vice president at Business Roundtable, an association of American chief executives whose companies together generate over $7-trillion in revenue. “The engagement is important.”
In particular, executives are signalling that tax increases aren’t anathema, a sentiment at odds with Republican proposals. Mr. Dimon said last week that he was willing to pay a higher individual income tax rate and higher capital gains taxes, even as he called for a reduction in corporate taxes.
Mr. Blankfein, too, said he wasn’t opposed to paying more income tax if an increase were part of a comprehensive fix that included spending cuts. “No one is so unpatriotic that they wouldn’t pay a little bit more to resolve it,” he said on Thursday. Mr. Blankfein expects to have more opportunities to speak out on the need to fix the country’s finances, said Andrew Williams, a Goldman spokesman. “This is important to him,” Mr. Williams said.
The message from business leaders is “one of ‘get it done,’” said Scott Talbott, who heads advocacy and lobbying efforts for the Financial Services Roundtable, a grouping of the nation’s largest financial institutions.
Beyond that refrain, however, executives are unlikely to advocate any particular measures, because each industry and sector has a set of tax provisions upon which they rely, Mr. Talbott said. “It would be very difficult for us to coalesce around a specific plan,” he added.
Still, the business community will continue to impress upon lawmakers the importance of finding a solution to the fiscal dilemma. “There’ll be an increasing drumbeat for getting a deal done,” said Stan Collender, a longtime expert on the federal budget and a partner at Qorvis Communications.
But executives “may be a little too late here in order to change the politics of it,” he said. “Getting a compromise is going to be extremely difficult.”