New Hope for a Fiscal Cliff Solution

          

            President Barack Obama met with a group of CEOs from some of America’s largest companies yesterday regarding the upcoming fiscal cliff. Approximately 14 CEOs participated in the meeting, including Llyod Blankfein of Goldman Sachs, Joe Echevarria of Deloitte, and Marissa Mayer of Yahoo.

            The CEOs want the government to act fast before a combination of over $500 billion of spending cuts and tax hikes takes effect in 2013. Economists predict that the policies could cut GDP growth by up to four percent and raise unemployment by one percent, sending the US back into a recession. Losses from the economy are estimated at $280 billion from ending the Bush era tax cuts, $125 million from the expiration of the payroll-tax holiday, $40 million from expiring emergency unemployment benefits, and $98 billion from spending cuts under the Budget Control Act, as estimated by J.P. Morgan analysts.

            Republican and Democratic party leaders in Congress are currently at a gridlock over the relative levels of spending cuts and tax hikes. Obama along with the Democrats in the Senate are calling for around $80 billion in spending increases, while Republicans are resisting letting tax rates raise for Americans earning over $250,000.

            The general consensus among the CEOs was to allow tax rate increases for the richest Americans. Echevarria said that most CEO’s agreed that there needs to be a revenue increase. Business leaders agreeing to the tax increases could possibly cause Republicans to end their long standing opposition to tax increases, without fear of angering wealthy individuals. This new development increases the chances that a deal will be reached before the deadline, averting a financial disaster. Investor optimism for a deal caused the S&P 500 to increase 0.8% on Wednesday.

Ashish Sathe