BOSTON (Reuters) – Corporate America is raising the volume of its plea that the US government avert a year-end “fiscal cliff” that could send the nation back into recession, but chief executives aren’t pushing the panic button just yet.
With a heated election season in the rear-view mirror, executives are calling on the White House and congressional leaders to head off a self-imposed deadline that could bring $600 billion in spending cuts and higher taxes early in 2013 if they are unable to reach a deal on cutting the federal budget deficit.
The Business Roundtable on Tuesday kicked off a print, radio and online ad campaign on which it plans to spend hundreds of thousands of dollars featuring the chiefs of Honeywell International Inc, Xerox Corp and United Parcel Service Inc calling on lawmakers to resolve the issue.
One of the more dramatic warnings of the consequences of allowing the US economy to go over the fiscal cliff came from Honeywell CEO David Cote.
“If the last debt ceiling discussion was playing with fire, this time they’re playing with nitroglycerin,” Cote said in an interview. “If they go off the cliff, I think it would spark a recession that’s a lot bigger than economists think. Some think it would just be a small fire. I think it could turn into a conflagration.”
The nonpartisan Congressional Budget Office estimates that the US economy would contract 0.5 per cent in 2013 if the government fails to stop the budget cuts and tax increases – far below the 2 per cent growth economists currently forecast.
A failure in Washington to solve the crisis by the year’s end could prompt major companies to curtail investment plans, said Duncan Niederauer, CEO of NYSE Euronext, operator of the New York Stock Exchange.
“We simply won’t be investing in the United States. We will be investing elsewhere where we have more certainty of the outcome,” Niederauer said in an interview.
About a dozen top US CEOs, including General Electric Co’s Jeff Immelt, Aetna Inc’s Mark Bertolini, American Express Co’s Ken Chenault and Dow Chemical Co’s Andrew Liveris are scheduled to meet with President Barack Obama on Wednesday to discuss the issue.
The four are members of ‘Fix the Debt,’ an ad-hoc lobbying organization that this week launched an advertising campaign that advocates long-term debt reduction.
Uncertainty factor
Bank of America Corp CEO Brian Moynihan said on Tuesday that worries about the cliff have companies holding off on spending.
“That uncertainty continues to hold back the recovery,” Moynihan said, speaking at an investor conference in New York.
Sandy Cutler, CEO of manufacturer Eaton Corp, shared his concern.
“Until we solve the fiscal issues (in the United States and Europe), you’re not going to get back to normal GDP growth,” Cutler told investors on Tuesday.
CEOs are not alone in this worry. The CBO report warned that failure to reach a deal could push the US unemployment rate up to 9.1 per cent, the highest since July 1991. It is currently 7.9 per cent.
Obama and the Republican leadership of the House of Representatives have signalled a more conciliatory tone since last week’s election, when Obama soundly defeated Republican challenger Mitt Romney, whose party retained a majority in the House.
Wilbur Ross, an investor known for taking stakes in distressed companies, is bracing for higher tax rates in 2013.
“We, like many people, have been trying to utilize gains this year. It does seem that the probability is that rates will go up,” Ross said in an interview with Reuters Insider. “We don’t have a “for sale” sign on anything. But we are mindful that there is a benefit to concluding things this year rather than next.
