2013: Planning for Uncertainty

Every conversation that I’ve had with business owners over the last several weeks has revolved around the challenge of planning to do business in a political and economic climate that defies normal planning conventions. The sequestration budgetary measures scheduled to go into effect on January 1, 2013, popularly termed by Ben Bernanke as the “Fiscal Cliff,” has people making moves that may be brilliant, or foolish, or may mean nothing at all.

One client has liquidated his portfolio. Others are standing pat. Some are advancing capital expenditures to take advantage of expanded section 179 credits, which will expire on the first of the year. Others are delaying such purchases, in the belief that deductions will be worth more if tax rates increase. Large corporations have borrowed billion of dollars at historically low rates in order to pay special dividends before the end of the year. Small corporations are stripping their equity out as distributions, and lending it back for working capital.

Small business confidence plunged following the elections, largely because nothing really changed in the battle between a White House focused on expanded entitlements, and a Congress that refuses to pay for them. Whether action is taken to forestall the Cliff, by no means a certainty, no one expects it to be a “Grand Bargain” that will stabilize the deficit and begin to reduce our national debt.

The Economist magazine, among others, calculates the impact of unmodified sequestration to be negative five percent of the Gross Domestic Product, or a recession some 40% more dramatic than the shrinkage in 2009.

What we really fear is that the leaders to whom we’ve entrusted the running of the country are insane. Does either party think that they would emerge unscathed after engineering a depression?

The United States is a grand experiment. We are just over 200 years old as a nation, and as a form of government. The right to vote was originally restricted by age, race, gender and property ownership. No one would regard such a limited franchise as a democracy today. None the less, Thomas Jefferson predicted 200 years ago that this experiment would only last until citizens discovered that they could vote themselves largess from the treasury. In California, where less than 150,000 out of 36,000,000 people pay half of all the state income taxes, did those 150,000 really have a voice in the referendum for higher tax rates?

One hundred years ago, in 1913, the states ratified the sixteenth amendment, which reads in its entirety : “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

This is not a diatribe against taxation. I don’t want to live in a country where the poor starve, or the sick lie begging on the sidewalk. I’ve been to some of those places, and I’m glad we are civilized enough to address social needs with tax dollars.

In order to generate those tax dollars, we have to run our businesses at a profit. The time we are wasting in trying to figure out what comes next isn’t helping anyone.

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