Corporate America Preps for Pending 'Fiscal Cliff'
If corporate America is worried about the pending “fiscal cliff” they are keeping pretty mum about it. It may be firms are saving any statements about how this might impact their business when they report their second quarter results.
Whatever it is, a lot of them just do not want to talk about the double or triple whammy posed by the expiration of the Bush tax cuts, automatic federal spending cuts and a federal budget poised to bump up against the debt ceiling next year.
CNBC called close to forty Fortune 500 companies to ask them how they were planning to deal with the fiscal cliff should lawmakers stay on the sidelines and let the economy roll off of it.
Most of the firms did not return our calls, a few did but declined comment. Exxon Mobil was an outlier, writing in an email it is not curtailing its hiring or spending because of the possibility the economy could drop off the fiscal cliff. The oil giant said it is protected by good demand for its long term debt and a triple-A credit rating.
“This strong financial position enables the Corporation to take on large, long-term capital commitments to help meet world energy needs. Exxon Mobil’s capital spending plans are unaffected by the economic downturn because we use a range of pricing to evaluate our investments. We plan to invest approximately $185 billion over the next five years to develop new supplies of energy to meet expected growth in demand," spokeswoman Kimberly Brasington wrote in an email.
For smaller firms with less financial flexibility, the fiscal cliff is casting a pall over hiring and investment, according to the National Association of Manufacturers. Dorothy Coleman, the group’s Vice President of Tax and Economic Policy, points out 70 percent of NAM’s members are “S” Corporations. That means the firms are taxed at the owners’ personal income tax rate. Many of those owners fall into the highest bracket, so the expiration of the Bush tax cuts means the firms tax rate could increase to 39.5 percent.
“When you are at 35 percent now and don’t know where it will be (next year),” said Coleman, “It does not incentivize investment and hiring.”
Sageworks CEO Brian Hamilton agrees. His firm studies private companies, 80 percent of which have revenue of $10 million or less. Hamilton said because the expiration of the tax cuts will mean less money in these business owners checking accounts, it will make them less likely to spend money on new equipment or hire new workers.
“The prospect of this could give us another 12 months of low job creation,” he said.
Mike Aitken, Vice President of Government Affairs for the Society of Human Resource Management, told CNBC companies he has spoken with believe Congress and the Obama Administration will work to prevent the economy from dropping off the fiscal cliff. While it is a concern, it is not bringing their business to a screeching halt. He also pointed out firms continue to hire. But the biggest problem they face now in adding new employees is not one that originates out of Washington D.C.
“Employers are starting to experience a skill shortage,” he said. A lack of trained professionals is the primary reason many companies are not hiring more workers.
-By CNBC's Mary Thompson