NCPA - National Center for Policy Analysis

Companies Warn About Cutbacks

November 16, 2012

Some big American companies are making plans to slow investments, lay off workers and pay less-generous dividends if Congress and the Obama administration don't find a way to avert the so-called fiscal cliff, says the Wall Street Journal.

  • The fiscal cliff refers to a combination of tax increases and spending cuts that will take place unless Congress finds another solution to the deficit.
  • There is projected to be $600 billion in cuts to government spending and the end of tax breaks.
  • The defense industry will be especially impacted by the cuts, as will many welfare programs.
  • Lockheed Martin, for example, says the automatic cuts would force it to lay off 10,000 workers.

Hiring has also stalled as many companies are slow to refill positions for fear that they can't afford new workers.

Companies are also saying that the uncertainty around the budget is affecting investment decisions. Moreover, the decisions of large corporations can have ripple effects throughout the entire economy. For instance, Home Depot is making its decisions based on the potential impact of the cuts on the housing market. The airline industry suffers when corporate spending and the overall economy decline.

Some industrial companies are being hurt because their customers are limiting spending. For instance, many state and local governments, which normally buy from industrial companies, are waiting to place orders until funding sources clear up.

The health industry is directly impacted by the cuts because of a 2 percent cut to Medicare. This is around $11.09 billion in cuts for this fiscal year, meaning that many hospitals, doctors and insurance companies that provide Medicare Advantage plans would be affected.

Hospitals are saying that these cuts would come in addition to other fees and cost increases as a result of the new health care law. Some will respond by limiting the number of patients they see or lowering readmission rates.

Source: "Companies Warn About Cutbacks," Wall Street Journal, November 14, 2012.


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