How The Looming "Fiscal Cliff" is Killing Business Investment


Our story thus far: The federal government has failed to even vote on a real budget in over three years, the economy is in the tank, the fall election pits the Wolf Man versus Frankenstein's monster and come January 1, 2013, current tax rates revert back to much-higher (and less progressive!) levels from the Clinton days while automatic spending cuts kick in. This is the "fiscal cliff" that Fed head Ben Bernanke warns about.

Now the NY Times reports on business' reaction:

"It's totally irresponsible and absolutely insane," said Evan R. Gaddis, the president of [am] electrical manufacturers' group. "The two parties are really dug in. Companies see the writing on the wall and business decisions are now being made on this."

Business leaders say the latest fight feels different. Last summer, during a confrontation over raising the debt limit that risked a government shutdown, Mr. Powers of Hubbell did not alter course at his company, as he is doing now. "We never expected the government to shut down," he said. "This bluff carries much more weight."

The main decision business is making, according to the Times? Says a representative business owner:

"Everyone is sitting back and hunkering down."

Whole thing here.

That's how regime uncertainty freezes an economy. And on top of the current morass you've got to add the lack of clarity about who will win the fall elections, the actual costs of implementing Obamacare, and tons more. Note that this is all stuff that doesn't need to be uncertain. It's within the realm of existing policymakers to provide more stability and predictability over the things the government controls (such as tax rates). Running a business is tough no matter what—markets are volatile and as any number of high-riding operations could tell you, creative destruction is alive and well in the private sector.

And don't mistake the inability of the feds to create policy with gridlock. As Veronique de Rugy and I wrote in The Hill last week, the Dems and the Reps have no trouble putting aside partisan feelings to pass farm bills greasy with pork. And there's this:

In just the past few months, for instance, the ostensibly gridlocked Congress reauthorized the Export-Import Bank program that gives money to foreign companies to buy U.S. goods; extended sharply reduced rates for government-subsidized student loans; re-upped the Essential Air Service program that subsidizes airline service to rural communities; and voted against ending the 1705 loan-guarantee program that gave rise to green-tech boondoggles such as Solyndra and Abound. None of these were party-line votes — all enjoyed hearty support from both Democrats and Republicans.

We conclude:

Simply put, this is no way to run a country. The problem is not gridlock or ideological fervor. The problem is an increasingly irresponsible government that has for far too long been far too easily let off the hook. Whichever party emerges victorious in November, and whatever happens in the lame-duck session, this much is certain: Unless taxpayers begin demanding their president and Congress act responsibly, and do the actual work they were elected to do,"gridlock" will be the least of our problems.

More here.