The fiscal cliff: what’s confronting corporate America?
The fiscal cliff: don’t stick your head in the sand
“We have a perfect storm coming up here over the coming months,” said Tom McGrath, Americas Senior Vice Chair – Markets, Ernst & Young, introducing an impromptu plenary session moderated by Scott Cohn, Senior Correspondent at CNBC, on the most pressing economic issue of the day: the fiscal cliff.
Kicking off the discussion, David Stockton, Senior Fellow at the Peterson Institute for International Economics, gave an overview of three possible scenarios the country is facing: “We go over the fiscal cliff, we strike a ‘grand bargain,’ or we come to a short-term solution and kick the can down the road a little. Unfortunately, I expect the most likely outcome remains that we fail to reach a long-term fiscal consolidation agreement.”
“I think ‘going over’ the fiscal cliff is a misnomer,” said Wayne Goldberg, President and Chief Executive Officer of LaQuinta Inns & Suites, eliciting nods from the other panelists. “We’ve already gone over it. The question is if details can be worked out that soften the fall.”
James Reynolds, Chairman & Chief Executive Officer of Loop Capital Markets, was optimistic about the future deal prospects but predicted a short-term “mini-bargain.”
“You can’t start today to get a grand bargain. That’s not even possible with the amount of time it will take to look at everything.”
“The president won’t solve it in his four-year term,” Charlie Vogt, President & Chief Executive Officer of GENBAND, agreed. “It won’t get solved in the next two terms. We need to be looking 20 years out.”
Kate Barton, Americas Vice Chair – Tax, Ernst & Young, declared that taxes will “absolutely” go up in some form. At the very least, Obamacare will cause significant tax increases. “There are some parts that will take effect January 1 — some high-net-worth individuals will go up 3.5%.” When talking about Obamacare’s effect on business, Goldberg noted, “Everyone [I’ve talked to] in large companies, they all say they will opt out,” as that is the less expensive option.
In the face of these realities, all of the panelists joined in urging listeners not to stick their heads in the sand. “The ostrich theory doesn’t work. You’ve got to plan,” Barton said. “Expect to kick the can down the road, pray for the grand bargain, and make contingency plans for going over the cliff,” added Stockton.