Business

Duke survey: CFOs seek balanced approach to 'fiscal cliff'

Posted December 12, 2012

Economy

— Chief financial officers of U.S. businesses say going over the "fiscal cliff" will lead to dramatic slowdowns in hiring and business spending in 2013 and will continue to hurt firms for years to come, according to a new survey by Duke University and CFO magazine.

The quarterly Global Business Outlook survey of more than 900 CFOs also found that a large majority prefer a solution that pairs $1 of tax increases for every $2 of spending cuts, similar to the plan proposed by the deficit panel chaired by former University of North Carolina President Erskine Bowles and U.S. Sen. Alan Simpson.

“It is shocking that CFOs overwhelmingly support Simpson-Bowles, which includes tax rate hikes to raise revenues,” John Graham, a professor of finance at Duke’s Fuqua School of Business and director of the survey, said in a statement. “CFOs generally prefer less taxation across the board, so their willingness to accept tax increases is dramatic.”

CFOs are very concerned about the possibility of the U.S. not finding a solution to the budget impasse.

More than 70 percent say they will reduce hiring if no solution is reached and the U.S. goes over the fiscal cliff. Another two-thirds indicate they will cut business spending.

“The survey offers strong evidence that capital spending will be slashed under a ‘cliff’ scenario,” Campbell Harvey, a Fuqua finance professor and founding director of the survey, said in a statement. “CFOs would also cut spending and hiring under a ‘kick the can down the road’ scenario. Capital spending would be robust only under an approach like Simpson-Bowles.”

CFOs indicate the damage brought on by the fiscal cliff would be long-lasting.

More than two-thirds say their firms will be worse off five years from now if Congress and President Barack Obama can't reach a deal by Jan. 1 to avoid a dramatic combination of spending cuts and tax increases. Fewer than 5 percent of U.S. CEOs think that going over the fiscal cliff is a desirable way to address the budget deficit.

Given the possibility that the U.S. will go over the fiscal cliff, CFOs in the U.S. were less optimistic about the economy than in previous quarters. Other concerns cited in the survey include weak consumer demand, the cost of health care and retaining skilled workers.

“These concerns have led to a continued erosion of optimism about the U.S. economy,” Kate O’Sullivan, editorial director at CFO Magazine, said in a statement. ”Optimism has fallen to 51 out of 100, down from 60 last spring, and even slightly below Europe. This is worrisome, because historically reduced optimism foretells slower economic activity over the next year.”

Corporate plans are flat for domestic hiring, according to the survey, with only a meager 0.1 percent increase expected in the U.S. This implies a rising unemployment rate in 2013.

CFOs plan to increase capital spending by just 2.5 percent over the coming 12 months, down from 7.3 percent in the spring. This is the fourth consecutive quarter spending plans have declined.

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  • Sarge Dec 12, 2012

    "Take it all over the cliff..."

    be careful what you wish for.

  • Cleanup on Aisle Cool Dec 12, 2012

    Of course we're going over the clif. So long as the Republicans will get the blame by the ignorant population, the Democrats are willing to let anything bad happen. This is political brinksmanship at its finest.

  • junkmail5 Dec 12, 2012

    Massive cuts in spending is the only way to even start the walk back from the cliff. The raising of taxes will do nothing but take money out of peoples pockets which in turn will slow spending

    -Zoo007

    The truly rich aren't spending that extra money anyway. You can tell because more and more of the nations wealth is ending in their pockets.

    You can not, mathematically, fix the problem with JUST spending cuts.

    You need cuts AND you need more revenue both.

    Neither alone can fix it.

  • DoingMyBest Dec 12, 2012

    "How can a rich person afford to staff their house with french maids, butlers and a sexy pool boy if their taxes go up? I don't know how they would survive without their cocktail partys and dinners that are written as a tax write-off for "a business expense"."

    You watch far too many movies and don't have a clue how people that are fortunate enough to have been successful manage their money and how frugal and generous they can be.

  • Zoo007 Dec 12, 2012

    Massive cuts in spending is the only way to even start the walk back from the cliff. The raising of taxes will do nothing but take money out of peoples pockets which in turn will slow spending, which in turn will slow the economy. "All HAIL ME" states that the rich will not be able to afford the maids, butlers and pool boys. What "ALL HAIL ME" forgets is the simple equation of "who" would then employ these people in their profession if a rich person could not anymore. The more write offs the better I say, why would anyone feel good about the government taking anyone else's, much less your own, personal property (money)? I'm lost to that however I do not have hatred and envy in my heart.

  • lprop Dec 12, 2012

    Taxes have gone up in the past and no one fell off a cliff. The only problem is Washington needs to live within a budget and quit wasting tax payer money. Just do your job and take the drama out of it. That is what the average hard working tax payer does. If they can't handle it then they need to resign and go home.

  • Barely Dec 12, 2012

    Take it all over the cliff and let the CEOs find out how much it costs to live like a regular person. No one said they are guaranteed to live like kings. Plus the government won't be there to bail them out.

  • Half Red Half Blue Dec 12, 2012

    How can a rich person afford to staff their house with french maids, butlers and a sexy pool boy if their taxes go up? I don't know how they would survive without their cocktail partys and dinners that are written as a tax write-off for "a business expense".

  • Issac Ishmed Dec 12, 2012

    A good reason for the 'erosion of optimism'. MANY companies are laying off significant numbers of workers. FHI360 in RTP for one. You don't hear about these hundred or so here and there but only the big IBM-scale layoffs...

  • aspenstreet1717 Dec 12, 2012

    Fine raise taxes on the top 2%, drop in the Ocean of the debt. In exchange only accept larger budget cuts. Across the board.