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Wells Fargo, Gallup: Small Business Won’t Invest in 2013

14 December 2012 by

Wells Fargo, Gallup: Small Business Won’t Invest in 2013

Traditionally, the mindsets of small business owners in the U.S. are indicative of the collective nation. If small business owners are confident enough to begin hiring, it’s usually a sign of good and improving things in the financial sector; if they begin retreating, as they’ve done since the recession, that’s also a sigh – though not one any look forward to.

And now, even as the President and congressional Republicans continue to wage war in how each side wants the fiscal cliff handled, there’s another crisis brewing. This time, it’s those small business owners who are saying not only will they not be making “significant investments”, but they won’t be hiring either. At least not in the short run. And certainly not until they know what happens with fiscal cliff, or to be more specific, what happens to their taxes as a result of fiscal cliff.

Minus 14

These numbers are courtesy of the latest Wells Fargo-Gallup Small Business Index, which was released earlier this week. It discovered small business owners’ net capital spending predictions fell dramatically to -14 in November. This is the lowest rating in more than two years. Between July and November, the difference is -13. This leaves no questions that business owners are not hopeful about both the economy and tax climate for 2013; for it to be such a drastic drop is indicative of their intentions of not spending or investing in things like computers or other equipment. This could seriously affect the bigger industries, such as construction.

One company showcased in the survey, Tart Lumber in Sterling, Va., is a family-owned firm that has provided hardware and construction materials to architects, homeowners and contractors for sixty years, sums it up well. Its president Carl Fritsche told Fox News in an interview that he wants to replace seven-year-old computer servers but has opted not to, at least in the near future, due to the fiscal negotiations – or rather, the lack of progress in the fiscal negotiations. He said,

I’m going to get by with what I can until I know what Congress is going to do. If the fiscal cliff happens, we’re going to go into a recession. People are going to put off wanting to buy their kitchens, or buying a new deck, or improve their home. I know it’s going to impact my business. So I have to hold off on those business decisions.

And it’s not just small business owners. In recent days, the effects of the fiscal cliff on taxpayers has been hitting the headlines. Not only are companies reining in spending, but now, consumers are taking a hard look at their last minute holiday lists.

I don’t even know if I’ll be able to take child tax credits. My gut tells me I need to cut back while I can,

said one woman we spoke to on Thursday.

Meanwhile, another company owner mirrored Fritsche’s sentiments. Clifford Wilkening purchased his first rental units back in 1976 and now, plans to improve the property are on hold.

We’re not going to be upgrading as many kitchens, replacing as many appliances, the bathroom equipment, air conditioning, stoves, right on down the line,

he said in an interview at his office.

What we’re going to do is probably change our philosophy a little bit, and now we’re going to start maintaining these things and maintain them as long as possible.

By now, everyone understands that the fiscal cliff is the series of tax increases coupled with big spending cuts that will go into effect on January 1 if Congress is unable to find a better solution that includes bypassing them.

No Progress in Congress

Meanwhile, talks on Capital Hill have gotten nowhere. Both President Obama and Senate Democrats continue to bicker and insist the other side isn’t compromising. Specifically, the Obama Administration wants to raise taxes for those who earn $200,000 annually while the Republicans are fighting tooth and nail to avoid that. They want to increase federal revenues without raising tax rates, preferring instead to reform the tax code in its entirety, which my include widening revenue basis and eliminating other tax deductions.

All of this is resulting in fewer credit card swipes, fewer online sales (despite Black Friday and Cyber Monday sales being higher than expected) and smaller turkeys that will grace Christmas dinner tables.

Not only are small business owners concerned about fiscal cliff, but they also know they will feel the pains sooner and will take the biggest impacts. Tax advisers say this is because the majority of small businesses are considered “flow-through” companies, meaning their profits “flow through” to their owners’ tax returns, and are taxed at the owners’ individual rates. As long as the Bush tax rates are in place, their rates stay the same. Most small business owners say not only will they not be hiring, but they’ll also be facing layoffs for their current employees, something none want to do. Even if a deal is struck, it’s sure to mean changes that will require extra work for their accountants – and extra expenses for their companies.

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