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IT industry could be blindsided by fiscal cliff

As threats of a fiscal cliff loom over the entire U.S. economy, the IT industry appears to know surprisingly little about it.

By , Network World
December 06, 2012 10:46 AM ET

Network World - As Congress continues to debate how it should prevent the federal government and national economy from plummeting off the so-called fiscal cliff at the end of the year, many technology companies - particularly smaller businesses and startups - may be unprepared for the ensuing changes.

Unfortunately for them, it may be too late to do anything about it.

How the fiscal cliff affects IT

The term "fiscal cliff" refers to a combination of changes in tax laws for private businesses and massive cuts in spending for federal agencies, many of which are slated to take effect at the beginning of January. With a projected fiscal impact of $534 billion for fiscal year 2013, the Congressional Budget Office estimates that these changes could increase the risk of economic recession next year in the form of a 0.5% drop in real gross domestic product and a potential return to 9.1% unemployment within the next year.

For IT businesses, the fiscal cliff could mean higher taxes on research and experimentation than were imposed prior to 2011, a $114,000 decrease in tax provisions allowing small businesses to write off asset-related expenses, and the disappearance of a bonus first-year depreciation on expenses that stood at 100% as recently as 2011. More information on the impact of the fiscal cliff policy changes on the IT industry is available here.

However serious these potential changes are, many in the IT world may not have been paying close-enough attention to avoid falling victim to them. Last month, nonprofit IT trade association CompTIA released a whitepaper showing that while 65% of its responding members believe the fiscal cliff should be approached with a combination of spending cuts and revenue increases, another 17% said they didn't know or were undecided.

Lamar Whitman, director of public advocacy for CompTIA, attributes this significant lack of knowledge to a combination of factors common in the IT industry. Quite simply, IT startups and small businesses may be too preoccupied developing and selling their products to stay abreast of changes in tax provisions, Whitman says.

Fiscal cliff
Credit: Stephen Sauer

"Some of these may be relatively small businesses, let's say 10, 20 or 30 employees, and I think that's the reason for it," Whitman says. "I don't know that they have thought about it and just couldn't come up with an answer" to the survey question.

However, it's not likely that those running small IT businesses are keeping up with the developments in their free time, Whitman says.

"My experience within our membership is that not all of our companies have a huge amount of political interest, so not all of our companies follow it day-to-day," he says.

Of course, those who did seek out information on the fiscal cliff were misdirected by the politicians charged with preventing it, Whitman says.

"Our whole nation has been preparing for this, saying 'we won't go off the fiscal cliff' - both sides saying 'we won't go off the fiscal cliff.' I'm not really sure that businesses have stepped up to the plate and prepared for the possibility that we might go off the fiscal cliff," he says.

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