On December 31st, 2012 tax increases and large spending cuts will be taken into effect due to President Obama's Budget control act of 2011. Economists are predicting that if these measures due take place, the economy will most likely hit a recession. Both Republicans and Democrat's agree that this plan, also known as the "fiscal cliff", needs alteration. However, congress cannot seem to come up with a better solution due to the ever so common political gridlock. The Financial field is left paralyzed. Without a clue as to what the tax rate will be in 2013, financing decisions cannot be made. Companies are forced to set their investment projects aside until congress makes up their mind. Hugh Regan, the CFO at Intest states,"In our business, we usually have three months clear visibility and another three months of foggy visibility. Now, I joke that I can’t see to the end of the parking lot."According to CFO.com, "If the automatic cuts and increases kick in, 67% of CFOs say they will reduce capital spending for 2013, and 70% say they will reduce hiring." These undesirable decision plan's CFO's are having to draw up if the "Fiscal Cliff" takes place is going to impact the stock market.
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| See link below to watch this video |
Video:
http://video.cnbc.com/gallery/?play=1&video=3000134360
References:
http://bonds.about.com/od/Issues-in-the-News/a/What-Is-The-Fiscal-Cliff.htm
http://www3.cfo.com/article/2012/12/forecasting_duke-cfo-outlook-survey-fuqua-intest-simpson-bowles-deficit-reduction-ciaramella-lasco
http://www.intest.com/aboutus/index.htm
There is always this talk about tax increase but I never quite see the big picture of how drastic increasing taxes turns out to be. Yes, things will cost a bit more if taxes are increased but I want something I will still buy it. I guess I do see how the market can be affected but at the same people who really desire somethings will continue to buy them no matter the cost. If Apple comes out with a new Ipad or Iphone in the next and the price is more than the previous one, I still bet people will buy it.
ReplyDeleteAnjelia, there is more impact with higher taxes on companies than you may realize. Companies deciding to take on projects for the future need to know the tax rate. The problem is until congress declares if they are going to come up with a deal or not, nobody knows what the tax rate is going to be in 2013. Companies are handling a lot more money than a consumer, thus the tax rate does make a rather big deal when deciding to take on projects that cost millions of dollars.
ReplyDeleteAs far as the consumer's issue with the fiscal cliff I'd advise you to watch the video link posted. Cramer talks about the possibility of large tax hikes on big screeen tv's. I understand there are loyal consumers that will spend whatever it takes to get what they want. However, there is a group of consumers who might turn away from purchasing items with additional tax if its large enough, maybe for the simple reason that they are on a budget. For every consumer turned away the company looses money. If companies don't make enough money they will start laying off employees, which could turn our economy into a recession.