What if we go off ‘fis­cal cliff?’

Busi­nesses, cus­tomers not wait­ing for Jan. 1 to be­gin cut­ting back.

Austin American-Statesman - - FRONT PAGE - By Joyce Rosen­berg

While some pro­fes­sional in­vestors say the worst ‘fis­cal cliff’ fears are overblown, some small busi­nesses are al­ready ex­pe­ri­enc­ing the con­se­quences of law­mak­ers’ fail­ure to reach a bud­get com­pro­mise.

NEW YORK — More than 1,000 miles from Washington, D.C., Marie DeNi­cola’s small busi­ness is al­ready ex­pe­ri­enc­ing the con­se­quences of law­mak­ers’ in­abil­ity to com­pro­mise on the bud­get.

If Democrats and Repub­li­cans don’t come to a con­sen­sus soon, a com­bi­na­tion of bil­lions of dol­lars in tax in­creases and bud­get cuts will go into ef­fect Jan. 1. This “fis­cal cliff,” as it is be­ing called, is al­ready hurt­ing DeNi­cola’s com­pany Main­stream Bou­tique, a Min­neapo­lis-based chain of 23 fran­chise stores that sell women’s clothes. DeNi­cola re­cently got a e-mail from a prospec­tive fran­chisee who said that she changed her mind about open­ing a store be­cause of un­cer­tainty about the eco­nomic and po­lit­i­cal cli­mate.

“It was like a punch in the stom­ach,” said DeNi­cola, who also op­er­ates one of the stores. “It’s a lit­tle scary — be­cause of the un­known, small busi­nesses aren’t wait­ing un­til Jan­uary or Fe­bru­ary to see what hap­pens. Peo­ple are re­act­ing now.”

Go­ing over the cliff could have a range of neg­a­tive ram­i­fi­ca­tions. If peo­ple have to pay higher taxes, they will likely spend less. Busi­nesses will hold off on hir­ing or mak­ing in­vest­ments that could help them ex­pand. Fed­eral bud­get cuts will put bil­lions in government con­tracts in jeop­ardy. Econ­o­mists and law­mak­ers warn that with­out an agree­ment, the U.S. could slip back into a re­ces­sion. And they say that small busi­nesses have the most to lose.

Like her po­ten­tial fran­chisee, DeNi­cola is also hold­ing off on big moves be­cause of the cliff.

“We’re wait­ing to see what hap­pens be­fore we de­cide on hir­ing. I can’t con­tinue to in­vest in the busi­ness un­til I know what’s go­ing to hap­pen,” she said.

One of the big­gest con- cerns for small mer­chants is the pend­ing ex­pi­ra­tion of the 2 per­cent­age point cut in pay­roll taxes that gave con­sumers more money to spend in 2010 and 2011. If the tax cut isn’t ex­tended, the government stands to get $95 bil­lion — money that con­sumers won’t be spend­ing at Main­stream Bou­tique and other small busi­nesses. Long-term job­less ben­e­fits will also ex­pire, giv­ing peo­ple who have been out of work for a long time $26 bil­lion less to spend.

Small busi­ness own­ers who rely on fed­eral con­tracts are also wor­ried about how much busi­ness they’ll get from the government if big spend­ing cuts go into ef­fect. Vince Fudzie, CEO of Tri­une, a gen­eral con­tract­ing com­pany based in Dal­las, says busi­ness with the government has been shrink­ing since 2006, and the cliff presents yet an­other chal­lenge. He’s al­ready been wait­ing to find out if he’ll get ap­proval to fin­ish a dor­mi­tory project for the De­part­ment of La­bor that’s 95 per­cent com­plete.

If no agree­ment is struck, Fudzie says he’ll have to ree­val­u­ate his busi­ness and see if it can find new niches to fill.

“Even in a bad econ­omy, there are pock­ets that are do­ing bet­ter. We have to fig­ure out, what are we good at?” he said.

In the mean­time, he said, he’s frus­trated by law­mak­ers’ in­abil­ity to reach a deal.

“We elect th­ese seem­ingly rea­son­able peo­ple to go to Congress and they seem un­will­ing to get along,” he said.

LM OTERO / AS­SO­CI­ATED PRESS

Vince Fudzie of Dal­las is wait­ing to hear if his com­pany will get ap­proval to fin­ish a fed­eral project.

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