Business Leaders Dive into the Fiscal-Cliff Debate

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If you’re already tired of talk of the “fiscal cliff,” brace yourself:  Several  business-friendly, deficit-unfriendly groups have launched well-funded campaigns hoping to bring even more attention to the issue. One involves a giant walking, talking can.

“Congress Can No Longer Ignore that the U.S. Economy is Headed Over a Cliff,” the Business Roundtable warns in its ads, launching today. “It’s Time to Act.” In several of the group’s ads, Honeywell Chair and CEO David Cote takes it a bit further. “If the last debt ceiling was playing with fire,” he asserts, “this time they’re playing with nitroglycerin.”

The Campaign to Fix the Debt, meanwhile, solemnly warns that “Inaction is not an Option,” while yet another group, aimed at young “millennials,” warns that politicians can’t solve the problem by simply “kicking the can down the road,” as the current favorite political cliché has it. The group, “the Millennial-outreach partner” of the Campaign, calls itself “The Can Kicks Back.”

At first glance, all this earnest effort seems a bit superfluous. It’s not as though the fiscal cliff is exactly being overlooked. It’s currently the biggest topic of conversation in DC not involving saucy emails, and until a deal is reached (probably around or after the looming January 1 deadline), talk of the fiscal cliff will be as hard to avoid as Christmas specials on TV.

(MORE: The Pessimist’s Guide to Surviving the Fiscal Cliff)  

So what exactly do these groups hope to bring to the discussion? Both the Business Roundtable and the Campaign to Fix the Debt promote “solutions” to the looming fiscal cliff, and the debt more generally, that rely heavily on spending cuts, and that are a long way off from President Obama’s notions of a “balanced” approach that includes both spending cuts and tax increases.

The Business Roundtable’s deliberately vague vision of “long-term fiscal health” involves “prudent reforms to reduce the growth of both discretionary and mandatory government spending; enacting a modern and fiscally responsible competitive tax code.” By “modernizing” the tax code they mean “lowering the corporate tax rate to 25 percent, and implementing a modernized, competitive system of international taxation.” That’s right: fiscal prudence means corporate tax cuts.

The Campaign to Fix the Debt, meanwhile, describes itself as a “non-partisan movement to put America on a better fiscal and economic path,” but it too is devoted to a similarly vague deficit “fix” that seems to rely mostly on spending cuts.

While plainly advocating cuts in “wasteful domestic spending” and the military budget, the group turns to euphemism when it comes to talking taxes. The group’s heavily promoted “citizens petition” refers vaguely to the need to “simplify the tax code and eliminate loopholes through pro-growth and revenue-positive tax reform.”

Fix the Debt claims that its campaign reflects a surge of grassroots concern, noting that its petition drive has garnered more than 300,000 signatures so far. But the group, with a $40 million war chest, was founded by two Washington insiders, Erskine B. Bowles and Alan K. Simpson, the authors of a famous deficit reduction plan, and is backed by powerful business interests. Its CEO Fiscal Leadership Council includes famous names from many of America’s biggest companies, from JPMorgan Chase’s Jamie Dimon to Microsoft’s Steve Ballmer, including several CEOs who are also heavily involved in the Business Roundtable’s campaign.

(MOREViewpoint: Why We Should Go Over the Fiscal Cliff)

Fix the Debt’s younger sibling, The Can Kicks Back, is similarly positioning itself as a grassroots effort which promises to “organize over 100,000 young people” to bring its message to elected officials. But it’s as carefully branded as any corporation, and comes complete with its own mascot, AmeriCAN, “a giant can character who will be visiting college campuses and walking the hallways of Congress to represent the young Americans who are kicking back to reclaim their future.”

Like I said, brace yourself.

84 comments
mark59
mark59

To answer WhiteyJones, who,  seems obvious to me, has nothing better to do than sent comments to the people that do not agree with his  miopic views of the world. If there is no equality in the amount of taxes every citizen pays. ( That include me, you, all all others!) there wouldn't be a society able to  buy the goods and services provided by the Corporations and the few Billionairs in the world. By taxing the rich not only is justified but necessary... Also, for the blind and misinformed, 8 years of Republican Administration has brought this great Country of ours on its knees with an  Economy that decreased  jobs for all sectors ( except the Defense Industry), during all this time  the rich have doubled if not tripled their incomes taking full advantage of the tax breaks available.  Open your eyes! the Tricle Down Economy has not worked neither was ever meant to work.

OzarkGranny
OzarkGranny

Instead of assuming that every rich person is a job creator and giving all of them a tax break, why don't we actually give a $20,000 tax break to any person or company that creates a $40,000 a year job in the USA? A million jobs would cost the government $20 billion dollars in lost tax revenue.   Can anyone identify a problem with this plan?

KPitman
KPitman

The Bush Cut roll back for the top 1% is essential. It is time for the ONLY group that actually made out better and increased their wealth, while MILLIONS paid the price for the Bush Bank Buddies Bailout, to pay their fair share. PERIOD. 

WhiteyJones
WhiteyJones

Best way to show that Obama is no American is by looking at the fact that he wants to demand that 2% of the population bail everyone else out by having their taxes raised. 

Anyone that is willing to raise taxes on one fringe group over others is a disgrace and should not be allowed to call themselves an America

mark59
mark59

the level of hate and stupidity fueled by the same corporations who should be happy to be in a Nation as great as ours is at the very least worrisome if not downright scary. In order to keep their status quo in the meager percentage taxation level they are willing to sacrifice all the rest of us... ( i guess i am part of the 47 percent who don't pay taxes.....). 

itfitzme
itfitzme

@OzarkGranny We could impose a negative tax rate on corporations.  For every dollar they earn, we can give them another dollar.  That will give them incentive to hire more workers and sell more product. ;-)

mark59
mark59

For ones in this forum I agree with WhiteyJones.....true Obama is not a Native American by looking at the fact that his ancesters must have come from somewhere else in the world...... Really!! Humm by the way i'm not sure that many of the readers of this forums can claim to be full blooded Americans... most of us are really offsprings of Aliens not matter legal or illegal.

itfitzme
itfitzme

@WhiteyJones You mean like increasing the capital gains tax to something more in line with income taxes?  You mean like that fringe group?

OzarkGranny
OzarkGranny

@WhiteyJones One reason to tax the rich ... they actually have some money to pay.   How much do you think a poor person can pay in taxes?  Should we charge the poorest 10 million $100. or the richest 1 million $1000?  Either way we get a billion dollars.  

KPitman
KPitman

@WhiteyJones 

It is a matter of perception. How is it a tax increase when the fight is to let the Bush Tax Cut expire? You have a picture of the last supper there. Can you tell me where in the Bible Jesus said the rich should get richer on the backs of the poor?

WhiteyJones
WhiteyJones

@mark59 it is really quite simple. While you are crying to raise their taxes so yours aren't, they will then cut back on their businesses by laying off workers to save their bottom dollar, then forcing another middle class person back to the unemployment line all because you people don't think.

Kudos.

mark59
mark59

there is not a worst blind than the blind who refuses to see!!!! or the deaf who refuses to hear.... not surprise romney got so many votes....

itfitzme
itfitzme

@WhiteyJones  Ridiculous.  No business will forgo making $95 in profit because they use to make $100 in profit before taxes went up.

itfitzme
itfitzme

@smokey50 Buisiness is about counting.  We count product, we count money.  When we count the money, it's called "accounting".

If you can't count, you cannot do the math. If you can't do the math, you are living in FairyLand.

OzarkGranny
OzarkGranny

@smokey50 Yes I do.  Businesses are currently sitting on $2 trillion dollars in capital reserves that they could spend to hire more workers.  Hiring more workers would stimulate demand for goods (from China) and services (from the USA). 

smokey50
smokey50

@itfitzme @smokey50 @jason.tyler.moore  

I'm not even sure what you're arguing about anymore other than trying to make it appear that you have some accounting knowledge.  Please refer to my conversation with jason.tyler.moore above to show where we both stand.  In short, taxes are not inconsequential to a business.  The tax rate has consequences.  We don't live in fairyland.

So... Have you run a business?  Still haven't answered that question.  I take it the answer is still no. Why can't you answer that simple question?

itfitzme
itfitzme

@smokey50 @itfitzme @jason.tyler.moore You need earnings, certainly.  Taxes are after expenses.  Principle and interest payments are an expense.  Why is principle an expense? Because it was for the purchase of captial equipment or other fixed costs. 

Feel free to jump in with some details about business acounting any time. 

itfitzme
itfitzme

To be pick, though it's not exactly you're point, the 50K comes off of earnings, not profit.  Profit is after interest and taxes.

smokey50
smokey50

@itfitzme @jason.tyler.moore @smokey50  

True...but you need profits to pay back the business loan right?  And you need to assure either a dividend or a rising stock price for the investors who buy shares right?   I take it by your earlier silence that you have never run a business?  Because your ignorance is absolutely staggering.

itfitzme
itfitzme

@smokey50 Money flows. It's not a "pot of money".  It's called a "revenue stream" for a reason.  Every month, sales are made, revenue comes in, wages are paid, rent is paid, materials costs are paid (sometimes 30, sometime 60-90 days out). Interest gets paid.  FICA taxes, state taxes, federal taxes.  Then comes dividends.  Every day, every week, every month, it flows in, it flows out.  It's a flow problem. There is not such thing as a "pot" of anything analogy.

itfitzme
itfitzme

@jason.tyler.moore @smokey50 R&D money is also always available in business loans and the sale of initial stock offerings. R&D money isn't dependent strictly on profits.

smokey50
smokey50

@jason.tyler.moore @itfitzme @smokey50  

Raised some.... I agree with that.  Glad we could get there eventually. And glad you agree that taxes do have consequences when "too high"  They are not consequenceless... (if that's a word :))  Nice sparring with you.

smokey50
smokey50

@itfitzme  

And it's ad hominem.  Still can't spell.  But you haven't answered my question.  Have you ever run a business before? 

jason.tyler.moore
jason.tyler.moore

 @itfitzme @smokey50 I was only pointing out countervailing influence of taxes on the opportunity cost of employees  its obviously a complex optimization problem from the government's perspective about where to set the tax rate. You can both tax at too high a rate and tax a too low a rate. The excess of investment capital as demonstrated by current market conditions indicates that we probably have them set too low and they could stand to be raised some. 

smokey50
smokey50

@itfitzme @smokey50 

Not for profits don't have investors to satisfy, idiot.  They only need enough to sustain the business, not pay off investors.  Geez, how obtuse are you?  And, have you run a business before?  Now?  

smokey50
smokey50

@itfitzme 

I"m a self employed business owner.  How about you?  BTW: hard to take you seriously when you can't even spell. 

smokey50
smokey50

@jason.tyler.moore @itfitzme @smokey50  

Well, heck...let's just tax 70% and hire a bunch more workers then?  Can I ask...have you actually ever run a business?  

It doesn't matter where taxes come in....before or after profit... they're still a cost.  Since every business needs to make a profit in  order to stay in business, the tax consequence affects the % of profit they will eventually make...thereby increasing their cost of production.

itfitzme
itfitzme

@smokey50 @itfitzme Not-for-profit companies, like AAA, don't have profit and have been around for decades.  Non-profit organizations obvously don't have profits yet have a renevue stream.

Of course, you can always bow out when your at a loss.

jason.tyler.moore
jason.tyler.moore

@itfitzme @smokey50  higher taxes can actually lower the opportunity cost of a worker from a business perspective. To illustrate using extremes. The opportunity cost of hiring a worker for 50K under 0% taxation is 50K in reduced profits. However under 100% taxation, hiring a worker from an opportunity cost perspective is actually free, since any profit not spent on overhead or workers would have been taken by the government anyway. Thus higher taxes actually lowers the relative cost of additional employees. This is simplified and doesn't take into account the productivity of the added worker, but it illustrates the point that higher taxes don't necessarily mean lower employment.

smokey50
smokey50

@itfitzme  

"Most companies don't have profit."  

Enough reason to end this asinine conversation.  

itfitzme
itfitzme

@smokey50 @itfitzme Of course they do.  Most companies don't have profit.  They are sustainable.  They pay wages and salaries.

jason.tyler.moore
jason.tyler.moore

@smokey50 @jason.tyler.moore The drop is share price is from a taxation perspective, if they needed the money for R&D they would have spend it already. Investor may get angry as they will lose valuations, but thats the debate isn't it? Investors wanting to hold onto money vs the government wanting to increase revenue. All indication are as I mentioned previously is that there is an excess of investment capital chasing to few investment opportunities. Also we aren't arguing between taking all of Apple's money vs none of Apple's money, we're arguing taking a fractionally larger portion of it than we are currently via moderately higher tax rates. This is prudent since there is excess supply side capital in many sectors of the economy that are not being put to use.

itfitzme
itfitzme

@smokey50 @jason.tyler.moore Taxes are not costs.  Taxes are taxes. Supplies, fixed costs, variable costs, salaries are costs. 

Total revenue = priced times sales volume.

Costs = Fixed costs + variable costs.

Fixed costs include cost of capital equipment, rent, etc.

Variable costs include materials and wages/salaries.

Earnings = Total revenue - costs.

Price per unit is always greater then cost per unit.

EBT is earnings before taxes.

EBIT is earnings before interest and taxes.

Taxes is tax rate * Earnings.  Tax rate is always less then one.

Profit is Earnings - taxes = Earnings * ( 1 - tax rate)

Taxes are always less then earnings, obviously.

smokey50
smokey50

@itfitzme  

Have you ever run a business?  Investors don't stay engaged with companies that don't turn a profit.  

smokey50
smokey50

@itfitzme @smokey50  

Aaaah... no.....

Again, I have no idea what you're trying to say.  But if a company has no earnings then they won't stay in business.  Is that  your goal? 

smokey50
smokey50

@jason.tyler.moore @smokey50  

And.........   they should just turn over the $100 billion to the US treasury?  And shareholders will like that?  Their share price won't drop along with the company's value?  And now they have less for R and D for future product development?  You actually believe that companies have a stash of cash that they can just turn over to the US government that will have no negative consequences for the business?  You're a hoot.  Costs are costs...no matter where they come from.  Taxes are costs and costs put pressure on a company's bottom line.  Any pressure to the bottom line has consequences.  You can't just separate out taxes like they're meaningless costs. 

itfitzme
itfitzme

@smokey50 If there is no earnings, then they don't pay taxes.  Profit is earnings - tax.  Tax is a percentage of earnings.  Profit = Earnings * ( 1 - Tax Rate).  If earnings are zero, then taxes are zero.

Perhaps your confusing the say businesses pay taxes with the way individuals pay taxes.

smokey50
smokey50

itfitzme

So...do you really believe that companies have this pot of free money sitting around that the government can tap with significantly higher tax rates that will not result in any consequences for the economy?  Do you believe that? 

smokey50
smokey50

@itfitzme  

You obviously have a different definition of the word "demand." 

jason.tyler.moore
jason.tyler.moore

@smokey50 @itfitzme Only under conditions where investment capital can easily be relocated to other wealth generating assets not affected by the tax increase or under conditions where prices can easily be raised. Currently large amounts of investment capital are tied up in government treasuries generating negative real yields, this, along with a seeming willingness to massively overpay for assets ala Instagram and Facebook, would indicate that the investors have very few places to invest. Unemployment is high and consumers have very little extra cash to spend. This would indicate that if taxes were raised that shareholders would have to eat the loss since they would not be in a position to either raise prices or move to different investments. 

smokey50
smokey50

@itfitzme  

You dont' read do you?  I said some of it is efficiency, but most of it lately is simply about DEMANDING more with less.  Again, where have you been?  Look, taxes are a cost of production just like any other cost, electricity, rent, cost of materials, etc...  Increase the cost of production and something has to give - either you charge more for the product (if you can get away with it - in which case all of us consumers pay) or you lay off people and demand more from less....or you lay off workers and hire back newer ones at lower wages.  But something has to give.  There is not this pot of free money the government can tap into without consequences.  That's asinine. 

itfitzme
itfitzme

@smokey50 @itfitzme Your assuming that there is efficiency to be had.  If there were efficiency to be had, then they would have done so already.

smokey50
smokey50

@itfitzme 

Again, I'm not sure what you're talking about.... laying off employees is about consolidating work and demanding the same work from fewer employees.  It's been happening at a rapid rate since 2008.  Some of it is efficiency, but most of it is just plain demanding more with less.  Where have you been? 

itfitzme
itfitzme

@smokey50 Depends on the elasticity of the product.  And, you can't increase bottom line by laying off a person who earns you $100 and costs $50 in wages.

smokey50
smokey50

@itfitzme  

Ah... I'm not sure what you're trying to say.  Look at it this way.  If a business' cost goes up 5% (in extra tax) then it needs to make that up somewhere in order to keep shareholders and other investors invested.  They'll make it up by increasing the cost of the product (if they can) or by reducing costs (which often means laying off employees).  Either way....we pay.