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Last updated
Tuesday, May 15, 2012 |
Corporate America
fears
'Taxmageddon' is coming
By Lori Montgomery and
Rosalind S. Helderman
WASHINGTON POST
Defense contractors have
slowed hiring. Tax advisers are warning
firms not to count on favorite breaks. And
hospitals are scouring their books for ways
to cut costs.
Across the U.S.
economy, anxiety is rising about the
potential for widespread disruptions
after the
November election, when a lame-duck Congress
will have barely two months to resolve a
grinding standoff
over taxes and spending.
The halls of the U.S.
Capitol are already teeming with people
warning of disaster if lawmakers fail to
defuse a New Year’s budget bomb scheduled to
raise taxes for every American taxpayer and
slash spending at the Pentagon and most
other federal agencies.
Last week, hospital
executives came to complain about big
scheduled cuts in Medicare payments. Next
month, university
presidents plan
to raise the alarm about big scheduled cuts
in federal research grants. And the chief
executives of Lockheed Martin and other
aerospace giants last Wednesday passed out
digital countdown
clocks ticking off the seconds until “over 1
million American jobs” will be lost to
big scheduled cuts in
defense.
“How
do you plan for
chaos?” Marion Blakey,
president of the
Aerospace Industries Association, sighed
during a break between meetings with
lawmakers, who could provide little
assurance that the spending cuts would be
averted. “It’s almost a unique moment in
government because there’s so much at stake.
And there’s nothing that inspires confidence
that this will get
done.”
The uncertainty is
already prompting some firms to take action.
Many more say they will be forced to
contemplate layoffs and other cost-cutting
measures long before the end of the year
unless the Republican House and the
Democratic Senate come up with an
alternative path to tame deficits. But with
control of the White House and both chambers
of Congress in play on Nov. 6, aides say it
is impossible to begin mapping a strategy
for compromise until they know who wins the
election, by how much and on which issues.
In the meantime,
political leaders are focused less on
finding solutions than on drawing lines in
the sand. In a speech Tuesday, House Speaker
John A. Boehner (R-Ohio) plans to address
the issue of national debt, which will once
again be nearing its legal limit in January,
just as the tax hikes and spending cuts are
due to hit.
According to advance
remarks provided to The Post, Boehner will
insist that any increase in the debt limit
be accompanied by spending “cuts and reforms
greater than the debt limit increase” — the
same demand that pushed the Treasury to the
brink of default during last summer’s
debt-limit standoff.
“This is the only
avenue I see right now to force the elected
leadership of this country to solve our
structural fiscal imbalance,” Boehner plans
to say at the Peter G. Peterson Foundation
fiscal summit. “If that means we have to
do a series of
stop-gap measures, so be it.”
Last week, the House
approved a plan to protect the Pentagon
in
January by reconfiguring $110 billion in
across-the-board spending cuts — known as
“sequestration” — so they would fall
exclusively on
domestic
programs, such as food stamps and health
care for the poor.
But one aerospace
lobbyist glumly noted that the House bill
will be “dead on arrival” in the Senate,
where Majority Leader Harry Reid (D-Nev.)
has vowed to block any effort to undo
the defense cuts
unless Republicans drop their opposition to
higher taxes for the wealthy.
“The answer is very
simple to our Republican colleagues who want
to help with defense: Revenues,” said Sen.
Charles E. Schumer (D-N.Y.). “The way to
deal with sequestration is put revenues on
the table.”
As lawmakers bicker, the
approaching deadline has taken on the
nightmarish “aspect of a slow-motion train
wreck,” said Ajay Rajadhyaksha of Barclays
Capital, with onlookers helpless either to
prevent the carnage or to get out of the
way.
“I feel like we’re
really in uncharted waters,” said Robert
Greenstein,
president of the
left-leaning Center on Budget and Policy
Priorities. “On the one hand, you say:
‘We’re a functioning country. Somehow, we’re
going to work this out.’ But then you ask:
‘What’s the scenario for a potential
solution?’ And you can’t come up with
anything that you can see actually passing
Congress.”
The impending upheaval
is the result of multiple policy changes all
set to hit at the same time. The George W.
Bush-era tax cuts are scheduled to expire in
December, along with a temporary payroll-tax
holiday sought by
President Obama.
Meanwhile, Congress last summer paired a
debt-limit increase with $1.2 trillion in
across-the-board spending cuts over the next
decade that almost no one wants to see
happen.
For the moment, most
economic forecasters are taking a sanguine
view. Mark Zandi of Moody’s Analytics
predicts
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Memos at random ...
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The Ice Cream
Festival is coming back.
The event in
Rockwood Park will be held the
weekend of July 7 and 8.
The popular
summertime event was scrubbed a few
years ago when county government ran
into financial difficulties. County
employees were paid to staff the
event as well as set it up and take
it down.
That was
considered and improper use of
public money.
It is understood
that this year's event will be
financed by commercial vendors and
donations by individual and
corporate sponsors through the
County Pride organization.
that the
lame-duck Congress will make a deal
to rescind half the spending cuts
and raise taxes for the wealthiest 2
or 3 percent of households — but
leave everyone else alone.
“There’s a lot of
room for compromise,” Zandi said,
noting that Boehner and Obama came
close to agreement last summer.
But others are
skeptical that lawmakers, fresh from
the combat of the campaign trail,
will be able to agree on anything.
Federal Reserve Chairman Ben S.
Bernanke recently warned that the
Fed would have “absolutely no . . .
ability whatsoever” to cushion the
shock to the economy if the nation
sails over what he calls the “fiscal
cliff” in January. And many analysts
worry that the uncertainty will
itself begin to dampen economic
growth long before New Year’s Day.
Kaman Corporation
chief executive Neal Keating said
his firm is already scaling back
hiring in Jacksonville, Fla., where
the company builds cockpits for
Blackhawk helicopters. He was hoping
for new contracts to refit the
nation’s aging fleet of A-10 Warthog
attack planes.
“So many of
those things are now uncertain,”
Keating said, adding that plans to
hire 200 workers have been put on
hold. Without further clarity,
Keating said, he could be forced to
start ramping
down
purchases and cancelling shifts
sometime this summer.
“One of the
most frustrating things is [that]
people in Washington say, ‘Well, we
don’t
think sequestration is going to
happen,’ ” he said. “But we’re
responsible for planning and running
a business.”
Nicholas
Wolter, chief executive of the
Billings Clinic, a chain of
nonprofit medical facilities in
Montana, said a scheduled 2 percent
cut in Medicare payments would
hammer his finances. But options
being circulated to replace those
cuts could also hurt, he said. In
addition, a formula that maintains
Medicare rates for
doctors
is also set to expire.
“You’re not sure
which of them might end up in
legislation,” Wolter said. “They’re
all potentially real.”
Tax policy is
also causing heartburn. Kate Barton
of Ernst & Young said she is
advising clients not to count on the
renewal of a slew of popular
business tax breaks that expired in
December. Even incentives for
research and development, which are
revered in both parties, could get
caught in the year-end logjam.
“We’re not trying
to be alarmist. But it’s a time when
the telescope and the crystal ball
are really foggy,” Barton said. “You
talk to one person and you hear one
thing; you talk to another and you
hear something else.”
This month,
about 120 university lobbyists
gathered near Metro Center in hopes
that top aides to Reid and Boehner
would shed light on the fiscal end
game. They didn’t. Instead, Reid’s
deputy chief of staff for policy,
Bill Dauster, cited a “good, if
dour,”
independent analysis that “many
election outcomes would produce
dynamics not conducive to getting a
deal” at all before the new Congress
takes office in January.
“You just
don’t
get the sense that there’s even a
secret plan yet. It’s scary,” said
Maya MacGuineas,
president
of the
bipartisan Committee
for a Responsible Federal Budget,
who has been meeting with corporate
leaders in an effort to build
support for a comprehensive
deficit-reduction plan.
During a recent
dinner in Washington, Lawrence H.
Summers and Robert Rubin mulled the
situation. Both men led the Treasury
Department during the Clinton
administration, and Summers was
Obama’s top economic adviser in 2009
and 2010. They concluded that,
whatever happens on Election Day,
exhausted lawmakers are likely to
resort to a short-term deal that
extends all the tax cuts, postpones
the spending cuts and pushes the
deadline for fiscal calamity into
the spring of 2013.
But even that
move would be risky, Rubin argued,
potentially inviting another
downgrade
of the U.S. credit rating, roiling
financial markets and shattering
confidence that the United States
will ever get its debt problem under
control.
Solutions are
easy to come by “when you’re sitting
at the Council on Foreign Relations
in New York,” said Rubin, the
council’s co-chairman. “It’s a lot
harder to
do it
when you’re sitting in Washington
and it’s one minute of midnight.”
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