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Brien Poffenberger: A white-knuckle ride to fiscal cliff's edge

December 12, 2012|By BRIEN POFFENBERGER

Last year, when Congress and President Obama couldn’t reach a budget deal, they agreed to a doomsday plan with an automatic timer set to go off at the end of 2012. What we have come to call the “fiscal cliff” combines indiscriminant budget cuts with de facto tax increases. Back in 2011, everyone thought that such a painful alternative would force a compromise. But here we are — just weeks away — and policy makers still haven’t come to an agreement. 

Maryland, with our dependence on federal spending, will be particularly hard hit. On Jan. 2, the federal government will increase taxes and slash spending, a move that most economists predict will send the U.S. economy back into recession. And if going off the cliff is catastrophic, the white-knuckle ride up to the edge is nearly as bad. 

While observers have decried Washington’s inability to fulfill its most basic of responsibilities, most commentary has focused on the cost in taxes to the individual households, a convenient — if tactical — way to make the abstract seem more real. Those increased taxes mean less spending power, pulling money out of our collective pockets and consequently out of the economy. The budget cuts compound the problem by withholding the stimulative effects of government spending. To complicate things even further, much of the economic analysis has been clouded by politics. Pundits and politicians alike are offering solutions rooted in their own ideologies, using the crisis to assign blame and score points as much as to fix the problem.    

Lost in the conversation has been an equally important tactical discussion about the impact on individual businesses. Companies gear business decisions around their evaluation of risk. The greater the risk, the less likely a business will be to invest in new equipment, hire new employees or expand operations. Economic growth requires a stable environment with predictable outcomes. It follows, then, that government leaders of every political stripe, having promised economic recovery, should work to reduce risk and create stability. And yet the fiscal cliff — and the run up to it — has done just the opposite.  

No matter the regulatory or tax structure, the surest way to impede economic growth is for government to create an unpredictable environment in which to do business. The threat of going off the fiscal cliff ensures that a company looking ahead to 2013 has no idea about tax rates, applicable deductions and government spending. Add uncertainty about consumer confidence, health care costs and an anemic recovery, and even businesses otherwise prepared to expand are increasingly reluctant.

Worse, instead of deploying capital to expand, many businesses are playing economic defense, trying to best position themselves against a number of possible realities in the new year. They are shifting money from one instrument to another, keeping money managers busy, for sure, but creating no value and adding nothing to the overall economy.

The uncertainty prompted by the budget stalemate is slowing the very economic growth that policy makers profess to be working toward.  Washington has lost the opportunity to reduce the economic drag caused by the run up to the fiscal cliff. We now need them to find the compromise that keeps us from going over it. 

Brien Poffenberger is president of the Hagerstown/Washington County Chamber of Commerce.







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