Pending Fiscal Crisis Already Taking Its Toll on Midwestern Manufacturers

By October 24, 2012Taxation

Last week I had the opportunity to travel outside the Beltway and meet with a group of tax professionals from manufacturing companies in Missouri. What struck me almost immediately was the general unanimity among these financial professionals that the grave uncertainty caused by looming tax increases and spending cuts is now negatively affecting companies.

Some of the company executives said they’re paralyzed in their decision making on a multitude of issues ranging from capital investments to acquisitions to job creation. Others said they already are making decisions based on “going over the cliff” that will adversely affect next year’s salaries and yearend bonuses. One company rep anticipated significant job losses if the defense sequestration goes into effect as scheduled in 2013 while another said his company may divest certain businesses this year based on tax implications in order to offset the impact of going over the fiscal cliff.

These concerns spread beyond the business community. An educator from a Missouri college echoed apprehension about anticipated cuts in federal funding for his school’s R&D activity.  A concern that’s well-placed since 21 percent of all university and private R&D is funded by federal expenditures according to an ITIF study.

These Midwestern companies also shared the same negative view about the business outlook as many respondents to recent NAM surveys. With time running out before the fiscal crisis hits, federal lawmakers need to take action during the upcoming Lame Duck session of Congress to avoid this self-inflicted wound. Specifically, Congress and the Administration should “maintain the status quo” on spending and taxes ideally for all of 2013, with a “path forward on reaching agreement in 2013 on a long-term package that addresses our deficit problems, including entitlement and tax reform. Now is the time for bipartisan cooperation between the legislative and executive branches of the government to avoid a fiscal crisis that will likely throw our economy into a recession.

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