While most of the country is worrying about how sequestration –  the so-called fiscal cliff – will affect the U.S. economy and their own personal finances, IT managers realize that this fiscal cliff could be especially treacherous for their industry, too. Have you considered how the fiscal cliff could affect your company’s IT operations?

From the removal of tax provisions for small businesses to huge cuts in spending on federal programs, the policy changes lurking on the other side of the fiscal cliff mean serious changes for companies. According to (Network World) (http://www.networkworld.com/), the Congressional Budget Office has predicted that, “if these policy changes are not altered by the turn of the year, the U.S. economy could plunge back into recession in 2013, with real gross domestic product dropping by 0.5% and unemployment shooting back up to 9.1%.”

Here are some of the spending changes that could impact IT businesses the most.

Federal IT spending could be cut.

The looming sequestration could result in a combined $66 billion in spending cuts among federal programs. These cuts would affect both defense and non-defense programs, resulting in a sharp decrease in spending. As a result, IT contractors working with federal agencies could lose contracts they had anticipated in the coming year.

Sequestration could have another affect on the IT market as well. If contractors are unable to find business from the public sector, they will simply look elsewhere. This branching out would result in a major increase in competition for businesses that usually stay in the private realm.

Tax increases could hurt small businesses and startups.

In an effort to provide relief so startups and small businesses could launch and grow, the “small business expensing” provision allowed these companies to write off up to $139,000 in expenses on assets. If they exceeded that limit, the companies were then afforded the “bonus first-year depreciation,” which allowed 100% depreciation of the remaining amount in that same year. These provisions kept burgeoning companies from drowning in the initial costs of getting off the ground.

However, big changes are in the works as part of the tax increases currently being proposed. The small business expensing provision will be reduced from $139,000 to $25,000 in 2013. And, the bonus first-year depreciation was reduced to 50% in 2012, and it will be dissolved completely in 2013.

Education cuts could widen the IT skills gap.

Sequestration could halt funding for federal IT training and educational programs, widening the skills gap that has left many IT jobs wide open. A growing skills gap could make it even harder for companies to find the right candidates.

CompTIA estimates that IT skills account for nearly 5 million U.S. jobs, but the workforce lacks the technical skill to fill many of these jobs. That’s where government funding for tech courses in public high school, community college, and universities comes in – hoping to help fill some of that gap. Besides cutting funding for these programs, sequestration also threatens programs for military service members. As more than 1 million armed forces personnel transition out of the military over the next few years, they will be looking for work. If tech programs designed to help them re-enter the workforce are cut, they will also be underprepared for the jobs the IT industry has to offer.

For more information about the fiscal cliff, view this Fiscal Cliff Resolution Summary. For our Complimentary IT Assessment of your business technology needs, give us a call or fill out the form below.
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