Pawlenty: Fiscal cliff already weighing on economy

By Peter Schroeder - 11/01/12 09:25 AM ET

The financial industry is warning that the fiscal cliff is already dragging down the economy, and Washington needs to deal with it as soon as possible to minimize harm.

In a letter sent to Congress on Thursday, the Financial Services Roundtable urged Congress to "bridge over" the fiscal cliff immediately, buying time to deal with more difficult issues surrounding taxes and spending.

"The fiscal cliff is imposing a negative drag on business lending, hiring, spending and investment right now, despite the actual 'cliff' being over two months away," wrote Tim Pawlenty, president and CEO of the Roundtable.

Pawlenty, the former Republican governor of Minnesota and GOP presidential candidate, officially began work as head of the Roundtable on Thursday, after the group announced his hire in September.

While the expiring tax cuts and automatic spending cuts that make up the cliff do not take effect until the beginning of 2013, Pawlenty said he is hearing from financial firms that businesses are already halting business activity because they are not sure what will happen.

For example, 61 percent of JPMorgan's U.S. clients are altering their hiring plans because of the cliff, and 42 percent of fund managers for Bank of America identify it as their greatest investment risk.

As a result, Pawlenty urged Congress to quickly adopt policy that disarms the threat of the cliff, giving policymakers time to craft a deficit-reduction proposal in early 2013.

Like other business groups issuing warnings on the cliff and the deficit, Pawlenty steered clear of weighing in on the most contentious policy matters, such as how to address tax rates on the nation's top earners and entitlement programs.

"The federal debt needs to be addressed in a comprehensive and bipartisan manner that supports, not undermines, economic growth. We need spending reform, including entitlement reform," he wrote. "We also need tax reform that encourages growth and investment. It will not be easy. But it needs to get done."