LOS ANGELES (Reuters) - U.S. business executives are holding out hope for an eventual deal to avert the impending “fiscal cliff” despite negotiations having stalled ahead of the Christmas holiday.
Corporate America, still reeling from the effects of the recent recession, is on edge as it watches from the sidelines the tense talks between President Barack Obama and Republican House of Representatives Speaker John Boehner.
If there is no agreement, roughly $600 billion of tax increases and federal spending cuts would kick in next month -- actions that could plunge the U.S. economy back into recession.
As negotiations have intensified and become more chaotic, CEOs have taken a less public posture.
It is a reversal from a few weeks ago, when executives were regularly holding press conferences in Washington and meeting with lawmakers to plead for a deal. Still, the business community is closely watching the twists and turns.
“It’s very unlikely that there is going to be a deal that can be finalized by the first,” said Todd McCracken, president of the National Small Business Association trade group.
Small businesses are in a “holding pattern” and are reluctant to expand as they await the outcome, McCracken added. Others echoed this sentiment, saying the effective stalemate had also contributed to an atmosphere of paralysis on Wall Street.
“The uncertainty paralyzes everybody,” said Roger Meltzer of DLA Piper, the biggest U.S. law firm. “It paralyzes capital, it paralyzes capital market transactions, paralyzes private equity transactions, even strategic M&A transactions.”
Meltzer, who becomes co-chair of the 4,200-attorney firm’s U.S. business on January 1, said there’s not much to do except wait. “You have no choice but to watch until the last minute,” he said.
The U.S. economy showed surprising signs of resilience in November despite the approach of the fiscal cliff. Consumer spending rose 0.6 percent when adjusted for inflation, while new factory orders for capital goods outside the defense and aerospace sectors - a proxy for business spending plans - jumped 2.7 percent, the Commerce Department said on Friday.
A plan by Boehner, the top Republican in Congress, that would have limited tax hikes to those making more than $1 million a year collapsed on Thursday after he failed to rally the support of anti-tax conservatives in his party.
Obama is insisting that the wealthiest Americans pay more in taxes in order to help reduce federal budget deficits and avoid deep spending cuts.
Larry Merlo, CEO of CVS Caremark, said “finding a path forward requires both parties to bridge differences,” adding that he was “optimistic” that a deal would get done.
The failure of Boehner’s “Plan B” threw the negotiations into disarray, though some in the business community dismissed the twists and turns of the dealmaking, saying they expected the talks to come down to the wire.
“We’re not going to see a deal until the day before the end of the year,” said Arno Harris, chief executive of U.S. solar project developer Recurrent Energy, a unit of Japan’s Sharp Corp. “All this stuff in between is just the theater setting the stage for the final deal.”
At the same time, executives said the negotiations should be put into perspective, noting the real goal is addressing the nation’s ballooning deficit.
“This should not be named ‘fiscal cliff’, it should be named ‘living within our means,'” said Elon Musk, a technology entrepreneur and CEO of electric car maker Tesla Motors Inc. “If we procrastinate in reducing the deficit, then we will face a true fiscal cliff in the future that is far more serious.”
Additional reporting by Erin Geiger Smith in New York and Jessica Wohl in Chicago; editing by Todd Eastham