How Will 'Fiscal Cliff' Affect Retailers?
Budget stalemate in D.C. may hurt c-stores, slow spending, hiring
WASHINGTON -- While no one knows exactly what the ramifications will be if President Barack Obama and the Republican-controlled House of Representatives fail to achieve a budget compromise before the end of the year, the convenience channel will inevitably feel the pinch.
From scaling back on new hires to increases in fuel taxes, the spectrum of threats to business in an economy still struggling to regain its footing are vast and daunting. One of the more compelling concerns is how widespread the effects will be, said Bubba Lange, senior vice president of solution engineering, FuelQuest Inc., Houston. If Washington fails to halt the impending increase in personal-income taxes due at the end of 2012, it will affect every household.
"When you had rising unemployment, it still only affected 10% of the population," Lange told CSP Daily News. "With this so-called 'fiscal cliff,' every family's taxes are going up by the same amount; now everyone is affected by that."
The looming income-tax increases combined with a scheduled round of government-spending cuts will create a "perfect storm" of stumbling blocks for the economy.
The uncertainty alone may be damaging, adds David Zahn, vice president of marketing for FuelQuest. He told CSP Daily News, "When you have that uncertainty, you tend to retrench; save more and spend less," he said, noting how the mindset can affect c-store operators as well as consumers. "Having that feeling of not knowing, people will go into pause mode. Should I hire that person or wait? We hit the pause button and try to figure out what to do next so we can adjust to what the new norm is going to be."
Bolstering Zahn's concern is a new survey that essentially says the fiscal-cliff issue may slow new hiring. The results of the International Franchise Association's annual "Franchise Business Leader Survey," conducted this past November, show 79% of franchisees and 73% of franchisors believe failure by Congress to extend current tax rates will have a negative impact on hiring and growth plans moving forward.
"What we need in this country is jobs, and the majority of that growth can come from the small business and franchising community if we avoid diving over the fiscal cliff," said IFA president and CEO Steve Caldeira. "Congress and the administration must find a way to decrease spending and raise revenue without raising tax rates on job creators."
Caldeira said the President has been on a "charm offensive with corporate CEOs, [while] the interests of franchisees and other small businesses seem to be taking a back seat--despite his campaign rhetoric on the importance of small-business growth to the economic recovery."
Whichever way lawmakers act, pressure still exists to raise government coffers, especially with regards to fuel and excise taxes, said Lange. On a federal level and in most states, fuel taxes are meant to maintain and improve the nation's highways, bridges and roads. Unfortunately, most of those taxes are not tied to normal inflationary pressures. He said the result is a dire need for funds to merely maintain the nation's roadways.
"The economy thrives and depends on infrastructure," said Zahn. "If you think about c-stores … if taxes go up, the price of fuel goes up. It costs more to deliver through the system. Distribution goes up; the cost of product goes up. Eventually, discretionary spending is threatened which may lead to consumers choosing not to buy nongasoline items."
As discussion over the fiscal-cliff issue labors on, Matthew Shay, president and CEO of the National Retail Federation (NRF), asked that as lawmakers review tax reform, they need to also evaluate corporate-tax rates. Calling current rates "the highest corporate tax rates in the world," Shay said his association advocates for a "level playing field in the global marketplace."
And while complimenting Obama on his willingness to address the issue, Shay said, "This should not be a proposal made in the 11th hour of the fiscal-cliff debate or made for political purposes to advance a narrow agenda during this crucial time in our history."
Any serious attempt at reforming the nation's tax system needs open discussion, he said, "from every stakeholder … and should be just one part of a broader approach to reforming the long-term fiscal situation of the U.S. economy."