The “fiscal cliff” and long-term government deficit issues are weighing heavily on the minds of finance professionals in the United States, and they do not expect business conditions to improve regardless of the results of the November 6th presidential election.
Three-fourths of 949 executives who responded to a survey at the annual conference of the Association for Financial Professionals (AFP) this month reported that they believe overall economic conditions will weaken if various tax law provisions expire and mandated government spending cuts go into effect as scheduled in January 2013.
Respondents rated implementing changes to avoid the fiscal cliff as the second-most important issue for federal elected representatives to focus on after the election. The most important issue to respondents was resolving long-term government fiscal and deficit issues, identified by 63% of finance professionals in the survey.
The long-term deficit problems of the US government have received a significant amount of attention from the CPA community recently. Greg Anton, the 2011–12 chairman of the American Institute of CPAs (AICPA) Board of Directors, recently posted a video describing the deficit problem in the US on the AICPA’s website.
David Walker, a CPA who served as US comptroller general in Republican and Democratic administrations, travelled the country speaking to crowds about the economic dangers of the federal government’s debt situation.
“We face a large number of growing problems, and Washington is not addressing them,” Walker said recently. “Our politics have been taken over by special interests, demagogues and career politicians. That’s got to change. We need policy reforms, operational reforms and political reforms. But we don’t have a whole lot of time.”
Walker visited states that are expected to be closely contested in the US presidential election, encouraging voters to keep the deficit in mind when they choose their candidates for public office. But amongst finance professionals, there is little hope that things will get better after the election.
Sixty-three per cent of respondents in the AFP survey expect the election to have no significant impact on business conditions. Similarly, 54% of CPA executives participating in the AICPA Business & Industry Economic Outlook Survey for the third quarter said the highly charged political atmosphere in Washington will not change for the better after the election.
“Companies are looking beyond the elections,” Jim Kaitz, the AFP’s president and CEO, said in a statement. “The most important issue is resolving long-term fiscal and deficit issues.”
Three-fourths of respondents in the AICPA survey said their optimism about the economy would increase if the government were to extend tax cuts originally passed during the George W. Bush administration – whose scheduled expiration is a significant component of the fiscal cliff. Tax cuts relating to capital gains, dividends and ordinary income are scheduled to expire January 1st. Without congressional action, the top tax rates on capital gains, now at 15%, will reset to the rates immediately before the reductions, generally 20%. Also, surtaxes imposed by the Health Care and Education Reconciliation Act of 2010, P.L. 111-152 (one of the major components of health care reform), could add another 3.8% to the tax rates of high-income taxpayers.
Thirty-five per cent of CPAs responding to the AICPA survey said repealing automatic spending cuts scheduled to be enacted at the end of the year, which are another element of the fiscal cliff, would improve their optimism.
Walker, during his bus tour, said politicians need to be careful about how spending reductions and revenue generation are structured in order to avoid causing another recession.
“We’ve got to deal with both the fiscal cliff … [and] we also have to deal with the fiscal abyss, which is much bigger,” Walker said. “We need to do it in an integrated, coordinated manner.”
—Ken Tysiac (email@example.com) is a CGMA Magazine senior editor.
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