CFOs warn of ‘fiscal cliff’ impacts in Duke survey

Dec. 12, 2012 @ 06:28 PM

The majority of chief U.S. financial officers polled in a Duke University survey said the “fiscal cliff” will lead to dramatic slowdowns in hiring and business spending next year.

These are among the findings in the latest Duke University/CFO Magazine Global Business Outlook quarterly survey of more than 900 CFOs, which concluded Dec. 7. The results were detailed in a news release issued Wednesday.

More than 70 percent say they will reduce hiring if no solution is reached and the U.S. goes over the fiscal cliff. Another two-thirds of respondents indicated they will cut business spending.

More than two-thirds say their firms will be worse off five years from now if Congress and President Obama can't reach a deal by Jan. 1 to avoid a dramatic combination of spending cuts and tax increases.

Fewer than 5 percent of U.S. CEOs think that going over the fiscal cliff is a desirable way to address the budget deficit. 

“The survey offers strong evidence that capital spending will be slashed under a ‘cliff’ scenario,” said Campbell Harvey, a finance professor at Duke’s Fuqua School of Business and founding director of the survey. “CFOs would also cut spending and hiring under a ‘kick the can down the road’ scenario. Capital spending would be robust only under an approach like Simpson-Bowles.”

CFOs also don’t see the solution as solely cutting government spending, according to the news release. Instead, a majority prefer a plan like Simpson-Bowles, which pairs two dollars of spending cuts with each dollar of tax increases.

 “It is shocking that CFOs overwhelmingly support Simpson-Bowles, which includes tax rate hikes to raise revenues,” said John Graham, a professor of finance at Duke’s Fuqua School of Business, and the director of the survey. “CFOs generally prefer less taxation across the board, so their willingness to accept tax increases is dramatic.”

The Duke University/CFOMagazine Global Business Outlook survey has been conducted for 67 consecutive quarters, according to the release. It generated responses from 926 CFOs, including 411 from the United States, 252 from Asia, 121 from Europe, and 142 from Latin America.