Anxiety builds in Utah as 'fiscal cliff' deadline nears
With the fiscal cliff deadline less than two weeks off, a large number of Utah businesspeople say they will accept higher personal taxes if they are balanced with spending cuts that put the budget deficit on a downward path.
And as the clock runs down to Jan. 1, the uncertainty of not knowing how or when the fiscal cliff discussions may be resolved has spawned widespread contempt toward Washington politicians, as well as a fair measure of defensive actions by businesses and their customers.
"I have heard business leaders express a willingness to see both cuts in spending and increases in revenue. ... They are problem solvers and they are pragmatists, and so that's been a prevailing view," said Natalie Gochnour, chief economist of the Salt Lake Chamber, which counts 7,400 members across the state.
Worst-case estimates of the impact tax increases and draconian spending cuts would have on Utah if no agreement is reached by midnight Dec. 31 range from $200 million to well over $500 million , according to separate calculations by the chamber and Gov. Gary Herbert's Office of Planning and Budget. Taxes could go up as much as $3,500 per taxpayer, while defense and non-defense federal spending might come down as much as $567 million .
Even the loss of $200 million to the state's budget "would be very challenging. To put that into perspective, the full impact of the Great Recession was $1 billion over three years," said Juliette Tennert, Herbert's chief economist.
The stalemate is producing all sorts of unintended consequences. Doug DeFries, CEO of Ogden's Bank of Utah, said his board of directors has joined many others nationally in paying shareholders their first-quarter 2013 dividend this month in order to forestall the possibility of higher taxes on dividends next year. DeFries has customers who are selling stocks and bonds this year over worries that capital gains tax rates will go up in 2013.
"Right now, it's based on fear that it's likely we will go over the cliff. If we do go over the cliff, [rates] definitely will go up," DeFries said.
Realtor Donna Pozzuoli says she probably lost six sales and maybe $12,000 in commissions this month because some clients are nervous that without a deal their finances could be turned upside down.
"They are not wanting to stick their necks out too far on offers because they are worried about their jobs," Pozzuoli said. " I can't tell you how many offers I've written up that haven't worked out. It all comes back to the nervousness and sensitivity to what's going on" in Washington.
David Golden, executive vice president of Wells Fargo's eight-state Rocky Mountain commercial banking division, said the bank is sitting on unprecedented "billions" of dollars deposited by businesses that aren't sure what next year will bring. The money, he said, is profit that companies gradually built up after laying off workers and taking other steps to cope with the recession.
"Now, though, instead of taking that profit and building a new warehouse or adding inventory or hiring another person, they are just putting it all in the bank because there is so much uncertainty around whether there will be another meltdown recession," he said.
Golden is not opposed to paying higher taxes on his income. Troubling him more is the prospect that lawmakers and the president won't reach agreement in time to avoid the tax increases and spending reductions set to kick in if the deadline isn't met. Almost any deficit-reduction plan is better than no plan at all, he said.
"We don't even need an A-plus plan out of Washington. We may not even need a B plan. We just need a plan that has some credibility, that can demonstrate to the business community that there is a way out of this even if it takes a long time. The most paralyzing thing Washington can do to us is give us no plan," Golden said.
Intermountain Healthcare, Utah's biggest hospital system, shares in the worry that no agreement will precipitate another recession, which cost Utah 80,000 jobs and led many people to put off medical care or starting families.
"A downturn could impact the ability of state government to be able to adequately fund Medicaid and, for the federal government, Medicare. Another possible impact would be the ability of local businesses to be able to provide health insurance for their employees," Intermountain spokesman Daron Cowley said. "So if you take all those things together, those factors would put a stress on the health care system in Utah and nationally, too."
Cowley said the number of colonoscopies that Intermountain hospitals performed during the recession fell 10 percent. It also did fewer mammographies and delivered fewer babies. Live births fell from 33,023 in 2008 to 30,973 in 2011.
"We think it's directly related to the economic downturn," Cowley said.
Dan England, chairman of C.R. England, said his Salt Lake City-based trucking firm has "anxiety" about the deficit-reduction battle. The pace of business began to slow noticeably during the third quarter, compared with last year. Consumers have cut back on spending, and that's led the company to haul fewer loads.
"There is a level of uncertainty in the economy. What percentage of that is attributable to the fiscal cliff and what percentage is attributable to uneasiness about the economy is hard to tell, but clearly [the fiscal cliff] is a factor," England said.
Like Golden, England is not opposed to paying higher taxes in order to generate more revenue for the government so long as the final deficit-reduction plan doesn't hurt business formation or expansion.
"I'm willing to do my part. We are taxed at a high rate anyway, but I'd be willing to do more if it would help," he said.
"I just hope that we have leadership in place that values the entrepreneurial spirit and values the people who are willing to take risks that provide employment. There's got to be a balance."