Fiscal Cliff: Will It Lead To Massive Layoffs?

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Now that the election is over, the No. 1 political buzzword in America is "fiscal cliff." And it's because Congress and President Obama are wrangling over a looming perfect storm of deadlines.

On Jan. 1, 2013, the George W. Bush-era tax cuts will expire and automatic federal spending cuts are simultaneously due to take effect -- as a result of a stalemate last year between Congress and the White House over how to reduce the budget deficit. The cuts and taxes that would result from going over this fiscal cliff would total $600 billion for next year. After a decade's time, the figure would come out to $7 trillion, which could result in rounds of cutbacks to programs such as unemployment insurance.

Whether an agreement will be hammered out in time to avert or minimize this fiscal cliff, the question remains: Is the mere specter of the fiscal cliff having an impact on employers and the job market? Is it discouraging employers from hiring? Leading to layoffs?

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Hiring Not Now

With the fiscal cliff looming and Senate and House negotiations still dragging on, managers from both large and small companies have threatened hiring freezes. Leading that chorus is the chief executive officer of Aetna Inc., Mark Bertolini, who runs the country's third largest health-care insurer. Bertolini told Bloomberg Businessweek that even after the election, "the arithmetic in Washington hasn't changed in any great shape or form," and so his basic views were unaffected. "The American people are going to suffer because we'll lay them off -- because we know how to respond to these kinds of situations," Marketwatch reports Bertolini as warning.

%VIRTUAL-hiringNow-topCity%Bertolini is one of more than 80 chief executive officers who are pushing for a deal through the CEO Council of the Campaign to Fix the Debt. The group has met with the president to lobby for a compromise, and some members have expressed a willingness to pay higher taxes in the name of patriotism, reports The New York Times.

Local business leaders also are embracing the idea of a hiring freeze until the fiscal cliff issue is resolved. In Southern California, business executives say that they are hesitant to make any new hires while the national economy remains in limbo. "I really believe everyone will be sitting on their hands until we deal with sequestration and the fiscal cliff," Donald Murray, president of the Murrieta-based Commerce Bank of Temecula Valley, told a regional newspaper, The Press-Enterprise.

The Sectors Most At Risk

The defense industry faces $55 billion in cuts as a result of the fiscal cliff next year, and so naturally could be targeted for "once unheard of reductions," in the words of The Washington Post. Such an event would have a direct consequence on jobs. In total, the job loss in the defense industry in the event of the fiscal cliff is projected to be roughly 250,000 positions next year, according to a study prepared by George Mason University for the Aerospace Industries Association.

Among the states that would feel the worst of the defense industry-related job loss are Virginia, Maryland and Hawaii, says The Associated Press. But there are others. Arizona, for instance, could lose as many as 38,000 defense and aerospace jobs as a result of the fiscal cliff.

Workers in many other fields could also be in great danger, reports say. They include the following:
  • Federal workers: 277,000 workers, or 14 percent of the federal workforce, could lose their jobs in the next 12 months if there's no new deal, according to the George Mason University study.
  • Manufacturing workers: Six million people working in manufacturing could lose work over the next three years, according to the National Association of Manufacturers. (Based out of Washington D.C., NAM is the country's largest industrial trade association and is unaffiliated with either party.) The NAM findings are based on recent surveys in which 55 percent of manufacturers and other small business owners said they wouldn't start their business in today's climate.


The Negotiations

President Obama and Congressional leaders have begun meeting to try and agree to a grand bargain before the cliff deadline. Republicans like Sen. Minority Leader Mitch McConnell are saying they won't agree to any tax hikes. (Joining Obama and McConnell in the talks are House Minority Leader, Nancy Pelosi (D-CA.), Sen. Majority Leader, Harry Reid (D-Nev.) and the Speaker of the House, John Boehner (R-OH))

McConnell has even warned President Obama, saying he "doesn't own the place." At the same time, the Obama White House has made it clear the president "will not sign, under any circumstances, an extension of tax cuts for the top 2 percent of American earners," in the words of White House spokesman Jay Carney.

Obama for his part conceded "we can all imagine a scenario where we go off the fiscal cliff." While little information leaked from the first meeting on Friday, observers were hopeful. After all, the meeting represented progress for having merely taken place; it was the first time the Republican and Democratic leaders had even sat down together for talks since the Republicans took over the House of Representatives back in 2010, according to the Washington Post.

Would The Tax Cuts Kill Jobs -- Or Keep Them?

If no deal is reached, unemployment levels from the worst of the financial crisis will return, reports the Congressional Budget Office, the nonpartisan federal agency that provides economic data to Congress. Indeed, the CBO expects that the fiscal cliff would plunge the economy back into recession, and the national unemployment rate would reach 9.1 percent by 2013's end.

Both those who are for keeping the Bush tax cuts and those opposed have reports to buttress their views. Ernst & Young estimates that 700,000 jobs would be lost by allowing tax rates on high earners to return to Clinton-era levels. On the other hand, says the CBO, a combination of restoring the pre-Bush tax rates for households making more than $250,000 -- but extending the Bush cuts for everyone else -- would save 1.6 million jobs.

Either way, the U.S. would probably be much better off if the politicians put resolution over political posturing -- otherwise, the CBO says, going over the fiscal cliff could cost American workers 3.4 million jobs.

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