Businesses to Washington: Please step away from the brink
December 18, 2012
It’s either the most popular promontory in the world or a metaphor that’s been exhausted in every conversation about economics since the election.
But what does the fiscal cliff really mean, and what are local businesses doing, if anything, to prepare for it?
In actuality, the cliff is a combination of automatic tax increases and spending cuts, estimated to be worth nearly half a trillion dollars, that will take effect in the new year if politicians can’t reach a budget deal. It is the result of political gridlock from the fall of 2011, when a so-called super-committee cocked the hammers of deficit-reducing measures to force some kind of deal in the following year.
One thing is clear: no one will be unaffected by the cliff. If the Bush-era tax cuts expire, income tax rates would go up across the spectrum. A temporary 2 percent payroll tax is also set to expire and would cut into paychecks. Federal extended unemployment benefits would end as well.
Speaking to a group of business leaders in Minden this fall, economist Jim Rounds said the fiscal cliff could knock 3 percentage points off national gross domestic product. Some states might be able to absorb the reductions, he said, but he feared Nevada would be thrown back into recession.
“We’re just hoping the government gets it together and doesn’t send us over the cliff,” Jeff Neri, general manager of North Sails in Minden, said last week.
Between two production facilities in Carson Valley, Neri oversees 102 part- and full-time employees.
“It’s tight enough running a business in this economy and keeping people employed and having the funds to do so,” he said. “We’re near the edge anyway, and this is not going to help.”
Neri said there’s not much businesses can do to prepare for the event that they haven’t already done in the recession.
“We’re certainly not going to let anyone go in anticipation of the fiscal cliff,” he said. “The only thing we could do to cut back on costs is to take money away from our employees, and we’re not going to do that.”
Steve Chappell, general manager of Carson Valley Inn, oversees 380 full- and part-time employees who would be affected by the plunge.
“We’re concerned about it, for both our employees and customers,” he said. “We know that this is going to affect everyone’s discretionary funds, which we rely on to be successful.”
Discretionary funding is the cash flow people use to eat out, see a show, or travel, Chappell said. Less money in people’s pockets means less money spent at establishments like CVI.
“The only thing we can do is continue to provide high-quality products and services to our customers,” he said, “and hope with whatever discretionary funds available, they continue to enjoy what we have to offer.”
Regarding employees, Chappell said sunsetting tax cuts would lead to less take-home pay.
“From the employee standpoint, it becomes much harder for them to make ends meet,” he said. “Our hope is that gas prices don’t spike, and that cost of living doesn’t increase in conjunction with a decrease in take-home pay.”
Like Neri, Chappell said steering a business through the last five years has been tough enough.
“The thing that bothers me, as a manager, is that it is my job to fix problems,” he said. “I wish the government would take more of a business approach. When they have problems, the goal should be to fix them.
“It shouldn’t be arguing over who is right and wrong and getting nothing done. Ultimately, the problems must be fixed.”