Goldman CEO Blankfein: Keep Taxes Low and Businesses Will Work With Government

Wednesday, 14 Nov 2012 11:17 AM

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The business community will work with the government to avoid careening over a fiscal cliff and move on to greener pastures, provided the government clears up tax uncertainties and keeps marginal rates low, said Goldman Sachs CEO Lloyd Blankfein.

While the business community often finds itself at odds with the Obama administration, the rift doesn't resemble that of the 1930s, when businesses worked with the Roosevelt administration and hoisted the economy out of the Great Depression.

Even Abraham Lincoln and former antagonists managed to end the Civil War, and Corporate America would be a powerful ally to combat fiscal uncertainties that are hampering recovery.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

"There is more than a trillion dollars of cash that is sitting on the balance sheets of U.S. nonfinancial companies," Blankfein wrote in The Wall Street Journal.

"With certainty about tax rates, companies will increase their capital expenditures (currently at anemic levels), contributing to a virtuous cycle of jobs and growth."

Compromise should mirror proposals outlined under the Simpson-Bowles deficit-reduction plan as a starting point that would include spending cuts, entitlement reform and revenue increases, Blankfein added.

"A number of CEOs and companies agree and support principles that call for a comprehensive and balanced solution to the debt problem — increased tax revenues and decreased spending," he wrote.

Tax reform, while a politically sensitive topic, is a very real possibility.
Compromise could include broadening the personal income-tax base by closing loopholes.

Such reform will boost the stream of revenue flowing into the government's coffers if complemented by minimal increases to marginal rates.

"The Obama administration has already signaled its interest in reducing the corporate income-tax rate. Business leaders should work with the administration and Congress on tax legislation that would reward work and bolster investment, while retaining the tax system's essential progressivity," Blankfein said.

Taxes have become a thorny issue when it comes to averting the fiscal cliff, a combination of tax hikes and government spending cuts scheduled to take place early next year that could push the economy into a recession if left unchecked by Congress.

Big CEOs have echoed Blankfein and warn that failure to craft policy that steers the country away from the cliff will force companies of all sizes to hold off on investing in new projects and exacerbate a likely recession.

The nonpartisan Congressional Budget Office has said the economy could contract 0.5 percent next year if Congress fails to steer the economy away from the cliff.

"We simply won't be investing in the United States. We will be investing elsewhere where we have more certainty of the outcome," Duncan Niederauer, CEO of NYSE Euronext, operator of the New York Stock Exchange, told Reuters.

Other business leaders have sounded louder alarm bells.

"If they go off the cliff, I think it would spark a recession that's a lot bigger than economists think," said Honeywell CEO David Cote, Reuters added.

"Some think it would just be a small fire. I think it could turn into a conflagration."

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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