Crony Capitalism and the Fiscal Cliff

Thursday, 29 Nov 2012 07:40 AM

By Jacob Wolinsky

  Comment  |
   Contact Us  |
|  A   A  
  Copy Shortlink
Every day, we hear more news about talks between CEOs of some of the largest companies in the United States and politicians. The CEOs are urging the GOP and President Barack Obama to come to a deal to avoid the fiscal cliff.

Why are these CEOs so eager to get a deal done? This question has not been addressed much in the media.

It is important to first review what the fiscal cliff is. The fiscal cliff is a combination of automatic spending cuts and tax increases that will kick in automatically on Dec. 31, unless an agreement is reached in Washington. The result would be hundreds of billions of dollars in higher taxes and spending cuts. Nearly all economists agree that going over the fiscal cliff, will hurt the economy and possibly lead to another recession.

So what is driving these CEOs to beg the GOP and Obama to get an agreement together? Are they looking out for what is best for America? Like most people would, these business leaders have reasons, which are likely more selfish.

Since all the CEOs fall into the top-income bracket, they would see their taxes rise, but there is something much worse than paying a few million extra to Uncle Sam. Corporate America has become addicted to stimulus and slush funds from the U.S. government. If taxes are raised on the middle class, and the federal government drastically cuts spending, this will hit most businesses hard. The result could be not just a few million, but several billion for businesses’ top (and bottom) line.

Lloyd Blankfein, the CEO of Goldman Sachs, is the perfect example to prove this point.

Blankfein recently said in an interview with CNBC that he would be willing to pay 5 percent in taxes to keep the United States from going off of the fiscal cliff.

He clearly is not concerned about whether he will pay 35 percent or 40 percent on federal taxes, he is concerned about much more. If the economy goes into a recession, Goldman Sachs would earn much less in revenue. This would hurt his potential bonus for the year, and ruin his legacy at the helm of the bank. Reports state that Blankfein would like to retire soon, but would like Goldman Sachs’ stock to recover further beforehand. If the United States goes into a recession, the stock of the investment bank would likely plummet.

This brings us back to our first point. Corporate America has now become intertwined with the government. Big corporations cannot imagine what business would be like if the United States did not directly or indirectly subsidize companies via massive deficits. This is best termed as “crony capitalism.”

Next time someone hears a plea from a business executive about the fiscal cliff, they should think twice about why the executive is so eager to avoid it. The sad fact is that crony capitalism is the name of the game in Washington.

© 2014 Moneynews. All rights reserved.

  Comment  |
   Contact Us  |
  Copy Shortlink
Around the Web
Join the Newsmax Community
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
Retype Email:
Zip Code:
You May Also Like
Around the Web
Most Commented

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

© Newsmax Media, Inc.
All Rights Reserved