Dear President Obama,
Congratulations on winning re-election.
Associated Industries of Massachusetts and its thousands of member employers are ready to roll up our sleeves and work with you and members of Congress to accomplish the most important task facing our nation – solving the debt crisis and avoiding the automatic budget cuts and tax increases due to take effect January 2 if the government cannot come up with a long-term deficit reduction plan.
Employers pledge to support efforts by you and the Congress to demonstrate that government can move beyond petty and dyspeptic partisanship to solve complex problems that threaten the very foundations of economic stability and opportunity. That means exerting the leadership necessary to forge consensus among a divided nation, a divided government and a sometimes divided vision of the American future.
The subtext of the election in virtually every exit poll is that Americans want their leaders to work together in a manner that generates confidence in a world and an economy rife with uncertainty. The pervasive scale of that uncertainty has already depressed business spending for much of 2012 - fixed investment fell 1.3 percent during the third quarter, and more than 40 percent of companies surveyed by Morgan Stanley this summer cited the fiscal cliff as a major reason for spending restraint.
The unmistakable message – negotiate, legislate, educate and articulate.
Under the Budget Control Act of 2011, Congress must act by January 2, 2013 to reduce the federal deficit, or automatic budget cuts (“sequestration”) will impose immediate, drastic reductions on both defense and non-defense spending, amounting to $1.2 trillion over 10 years. The first-year cuts are $54.7 billion on each side of the ledger - a 10 percent reduction in non-exempt defense spending and an average 8 percent reduction in most other discretionary non-defense accounts.
Sequestration, put in place in a failed attempt to force resolution of budget issues last year, is just part of the “fiscal cliff” before us in 2013 – we also face the expiration of extensive tax reductions initially enacted under President Bush, and of the employee payroll tax cuts included in your stimulus package. All of these will take effect automatically if Congress does not act.
The budget cuts and tax increases will go a long way towards eliminating the budget deficit. But they will also bring an end to the already weak economic expansion we have been experiencing. Economic forecasts suggest that sequestration alone would push the nation into recession and raise unemployment by two percentage points.
Sequestration would also represent a catastrophic failure of the political process. Former U.S. Comptroller General David Walker maintains that the federal debt as a percentage of Gross Domestic Product is worse in the United States than in any country in Europe except Greece. Walker argues that the nation needs at least $5 trillion in deficit reduction during the next decade and that federal debt as a percentage of GDP must fall from 103 percent to 60 percent.
Failure to reach agreement on reducing the federal deficit will cost Massachusetts thousands of high-skill jobs in key industries such as health, education, research and defense.
AIM’s perspective on the federal fiscal crisis is a product of its non-partisan position and of the breadth of its membership, which includes employers in every sector of the economy. The key components of our view may be summarized as follows:
- The ongoing political deadlock over federal finances is having a serious impact on business confidence, evident in AIM’s own Business Confidence Index and in national studies. Inaction in Washington, and the impending crisis created in a failed attempt to force action, is a principal source of the uncertainty that is depressing job creation and investment in the private-sector economy.
- Everything needs to be on the table in the search for a solution – budget controls, Social Security reforms, spending reductions and comprehensive tax reform that would generate more revenue.
- To frame the choices before us as basically between defense spending on the one hand and expenditures on domestic programs on the other is to continue to evade decisions that are difficult, complex, and ultimately unavoidable.
- Attaining long-term federal fiscal balance will require discipline with regard to spending and revenues, and economic growth that will make manageable for our children and grandchildren the massive public debt accumulated over the past generation.
- A primary component of any long-term program to achieve fiscal balance must be control of health care costs, which push up the price tag of all federal programs and pose the principal threat to the viability of entitlement programs (notably Medicare). The fact that all businesses, as well as state and local governments, bear similar burdens makes this the number-one issue for AIM and its members.
The member employers of AIM respectfully urge you and members of Congress to work towards timely action on this most pressing matter. We do so in full understanding that the issues are complex, the decisions hard, and any solution to some degree necessarily painful.
In your own words, Mr. President, it’s time to move Forward.
Best wishes for success.