July 28th, 2011, By Dana Haugh
Whether or not Congress unanimously decides on a plan to raise the debt ceiling, one thing is certain: federal spending needs to be cut substantially over the next decade. The amount of cuts will be based solely on which plan Congress decides to implement (if they ever reach an agreement). But government spending cuts might not produce the negative effect everyone normally associates with the word “cut.” In fact, significant cuts may actually lessen the burden felt by taxpayers and potentially create an increase in commercial real estate investments. Why is this you ask? Chris Macke from CoStar breaks it down in his article “Debt Deadlock,” so I will attempt to sum it up.
From 1969 to 2009 the federal budget has increased by about $2.5 trillion dollars, but in this time federal payrolls have shrunk significantly (about 30% less than what they were in 1969). At the same time, private sector payrolls increased significantly, with an 85% increase seen between 1969 and 2009. As Macke states, “it seems reasonable to assume that, if the private sector benefitted from the federal budget growth, it may also suffer when that spending is cut.” So, while we are all focusing on how much this is going to affect federal and state jobs, we should reevaluate the situation slightly. A reduce in private sector funding, which will most likely occur should a plan be agreed upon to cut government spending, will likely result in a significant number of job losses. However, this is where “Corporate America” steps in to save the day. It’s expected that Corporate America will attempt to “offset the job losses associated with government spending cuts by investing in their businesses and hiring large numbers of employees.” And under the right conditions and plan of action, the reduction in government spending
would likely lead to a “reduced tax burden” for many Americans, giving them more of their money, increasing their ability to spend and stimulate the economy. All in all an ideal situation, of course. But the question ultimately comes down to whether or not it’s in the cards for Corporate America and what their plans will be pending the debt ceiling decision.
Macke points out that if $100 billion or more a year was removed from government spending, the commercial real estate market would likely benefit from this as long as corporate investment increased as well. Removing the government spending burden American taxpayers would reduce their financial hardship and most likely promote spending in areas such as shopping centers, driving up GDP as well as “providing the increased demand business leaders are looking for before hiring.” There are an incredible number of factors to take into account, of course, and each affect how the events will pan out in the next decade. Speculation is good food for thought, but now’s the time for action.
All information gathered from CoStar.