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4 ways the fiscal cliff will impact CIOs

Jonathan Hassell | Dec. 21, 2012
Odds are, Jan. 2, 2013 won't begin any differently than your last work day of 2012. Even if Congress and the President reach a deal, though, CIOs will feel the impact of the fiscal cliff as the new year progresses. Here are four lessons you should apply to the 'new normal' that austerity demands.

America is abuzz with the talk of the impending financial calamity known as our fiscal cliff. You can find all the information you would ever want about this event by just reading a newspaper. What is lacking, though, is a bit of perspective, both about the event itself and also from the point of view of CIOs and technology staff.

What does all of this mean for you, the CIO? Here are four key considerations.

1. The Fiscal Cliff Is a Long Downhill Slide, Not a Plunge

What the alarmist media seems to be reporting in earnest and I suppose in a sense one can't blame them, given the name of this phenomenon-is that, if a deal is not reached come Jan. 1, the American economy will simply seize up. Goods won't be sold. Lights won't come on. Planes, trains and automobiles won't run. And so on.

This is absolutely not the case, and it is important to understand why in order to maintain a reasonable perspective. For one, the tax increases that are part of the sequester are essentially amortized over the entire year. Individual citizens and businesses alike will not suddenly be asked to come up with the entire tax increase difference on Jan. 1. That liability will accrue over the entire year.

Second, President Barack Obama has some authority to delay the implementation of the spending cuts ordered in the sequester, using his executive order power to direct agencies to hold off on executing on those cuts. He may well use this authority if a deal is near, but not quite signed, sealed and delivered, by Dec. 31. Before getting all up in arms about the Dec. 31 deadline, remember this: In general, Jan. 1 and 2 are going to look a lot like Dec. 30 and 31.

Now, if Congress and the President continue to dig into their positions well into January and no progress is made toward a deal, by the time mid-February or early March rolls around, you will have an economy with significantly less government spending. Private paychecks will be smaller, too, thanks to the increased withholding accumulating over several checks since the start of the year to begin to pay for the increased taxes. Then the real effects of the "cliff" begin in earnest-and the situation will likely deteriorate from that point forward.

That said, the point here is this: Don't return to your office after your holiday vacation quaking in your boots. The world still goes on.

2. Prepare for Budget Reduction Requests

If the situation wears on, you are sure to encounter a budget cut or two. It may even be a severe cut, like banking and financial service giant Citigroup shedding 11,000 jobs, and booking a related $1 billion charge in its fourth quarter.


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