U.S. small businesses are increasingly worried about the looming "fiscal cliff" which has no signs of a solution as Congress remains gridlocked, said major financial services company Wells Fargo in a report released Friday.
A deal may yet come through, but at the moment the two sides are unable to compromise on taxes for upper income earners, who President Barack Obama argues must pay their fair share. Republicans, however, contend that taxing those in the upper tax brackets will stunt growth and jobs creation.
The Wells Fargo/Gallup Small Business Index fell 28 points in the fourth quarter to 11 amid small business angst over what to expect next year in terms of financial prospects and how tax and policy changes will impact sales and operating expenses.
The drop is the largest decline in four years, after it fell 35 points in the fourth quarter of 2008, Wells Fargo reported.
Small business owners' views on current business conditions deteriorated slightly during the most recent quarter, with the percentage of firms reporting their current financial situation as either very good or somewhat good slipping 2 points to 51 percent.
The share of firms saying their current financial situation was either somewhat poor or very poor had a similar rise, climbing 2 points to 28 percent, according to Wells Fargo.
The proportion of small businesses claiming a revenue rise fell for the second consecutive quarter by 2 points to 29 percent, while the proportion reporting revenue decreases rose 6 points to 44 percent, the financial services company said.
Though 71 percent of small businesses said revenues were either unchanged or down for the quarter, views on cash flow were essentially unchanged, "which suggest(s) that businesses maintained a tight rein on expenses and remain less willing to hire or invest in new equipment," the company said.
Unless the Congress acts by the end of this year, the "fiscal cliff", or a combination of tax hikes and sweeping spending cuts" worth about 600 billion U.S. dollars, is set to kick in. Democrats and Republicans have so far locked horns over how to avoid the disastrous scenario.
Obama, who insists on tax hikes on rich Americans, has proposed to boost revenue by 1.6 trillion U.S. dollars over the next decade, with only 400 billion dollars in spending cuts on entitlement programs.
But Republicans, who refuse to increase taxes and urges more government spending cuts, have criticized Obama's fiscal plan as "not serious."