President Obama will meet tomorrow with members of Congress to start negotiations in the hopes of avoiding the fiscal cliff. Business leaders are carefully observing discussions and preparing for whatever may come. Marketplace Morning Report Host Jeremy Hobson spoke with UPS CEO Scott Davis about his views on the economic implications, compromise, and how his company will adjust if Congress can’t strike a deal.
Jeremy Hobson: Good morning.
Scott Davis: Good morning, Jeremy.
Hobson: Well, so what are you preparing for at UPS when it comes to the possibility of the nation going over the so-called fiscal cliff?
Davis: Well, I think obviously there’s a lot of concern that the economy has been limping along since the Great Recession. Growing at one to two percent. And the fact that we have a self-inflicted crisis in front of us because we haven’t made decisions on the debt issue is a big concern. And as everybody has talked about, if we go over the cliff, it’s a huge impact on the economy, and probably puts us back into a recession.
Hobson: Are you having contingency meetings; do you have whiteboards with all kinds of things that might happen there at UPS?
Davis: Clearly at UPS we’re always planning for the future, and we move about six percent of the U.S. GDP every day. So if we do head into a second recession, clearly it’s something we have to react to, we have flexibility at UPS where we adjust our workforce based on the number of packages we’re shipping each day. So clearly, based on our customers’ activity, we’ll adjust our workforce.
Hobson: So do you think you’d have to lay people off if we went over the cliff?
Davis: I think likely, if the CBO is correct and the economy was to get hit by four percent — go from a plus two percent economy to a minus two percent economy. That would impact our package volume which would impact jobs.
Hobson: Alright, so let’s say that Congress and the White House can come up with a deal, what would you like to see in that deal?
Davis: I want to see a balanced solution. I want to see a solution that involves additional revenue going forward, and a solution that involves the spending cuts and entitlement reform that we need to protect our future generations. Not easy to do, but we need a big solution, a $4 or $5 trillion solution.
Hobson: Now when you say revenue, would you say ok if taxes went up on the wealthy?
Davis: Well, I think taxes are going to have to go up. Whether it’s through capping deductions or rates, but I think in general I would certainly encourage corporate tax reform and individual tax reform. The systems we have today are too complicated, they are not competitive. I think we need to change that, but the end result has got to be more revenue coming out of that.
Hobson: Now we always hear that big companies are sitting on a lot of cash right now, and as soon as they have some certainty about tax rates for example that they’re going to go out and spend, and we’ll see a big economic boom in this country. Are you one of those companies that’s sitting on a lot of cash?
Davis: We are sitting on a lot of cash now. We are in the middle of trying to close an acquisition in Europe; a sizeable acquisition. But we’re in a good cash position. I think all business leaders when they have better policy certainty…you really need to understand what are the policies going to be, whether it be tax, spending, trade, energy — you want to know those policies for the next four or five years. Then you’re willing to make the bigger investments, and that’s what we need. We need certainty of policy.
Hobson: Scott Davis is CEO of UPS. Thank you so much for talking with us.
Davis: Jeremy, great being here.