It is hard to escape hearing about the “fiscal cliff” from the news media, with predictions of doom and gloom coming from both reporters and politicians across the political spectrum. But what exactly is this cliff thing all about, and what impact, if any, will it have on IT for midsize businesses?
The Cliff in a Nutshell
As explained in Forbes, the term refers to a combination of several measures that, coming into play at the same time in January 2013, promise to drastically impact government revenue and spending, as well as the tax rate and other economic factors for just about every American. Its two major components are an automatic expiration of certain tax cuts, and reductions in government spending which will take place unless current laws are changed.
The tax cuts in question were signed into law by President George W. Bush and set to expire on December 31, 2010 but were extended for two years by President Obama. If the tax cuts expire, the tax rate for the wealthiest Americans would jump from the current 35 percent to 39.6 percent.
Reductions in spending would impact military budgets to the tune of nearly half a trillion dollars over the next 10 years, with drastic reductions in nonmilitary spending as well, including in social programs such as Medicare. Since so many industries and jobs depend on government spending, the cuts are expected to increase the unemployment rate.
If both events come to pass as is, the higher taxes and reduced government spending might provoke a recession, according to some analysts. This is one of the reasons why there is such an intense debate about how to avoid both components from coming into play without modification.
How Will IT be Affected?
Should these budget cuts and tax hikes occur, the impact for midsize businesses might be substantial. Obviously, if a small or medium business depends on government contracts in some way for revenue, there is cause for concern, and IT departments could face staff reductions. But even businesses unrelated to the government could be affected, even if just through a simple increase in competition arising from former government contractors now entering the private sector seeking to replace lost business.
One benefit for IT managers, however, might be a flood of trained IT personnel available for hire in the coming months as their employers slash budgets in response to eliminated government contracts and a higher tax burden. Midsize businesses that faced a shortage of trained candidates may find themselves with a nice roster of applicants to choose from to join their tech teams.
Whether the fiscal cliff comes to pass depends on lawmakers who have until the end of this year to reach a compromise. IT managers should watch events unfold with a keen eye, because one way or the other, a change is going to come.
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