Conversation with Dean Zerbe, Former Senior Counsel to the U.S. Senate Finance Committee; alliantgroup National Managing Director
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New York CNN — President Joe Biden said over the weekend that debt ceiling negotiations were moving along and that talks between the White House and House Speaker Kevin McCarthy would resume on Tuesday.
But there is still no plan in place to avoid a default on US debt, and there are now just four days when both the House and Senate are scheduled to be in session before June 1, the date when Treasury Secretary Janet Yellen has warned the US government could run out of money.
Without swift action by Congress to raise or suspend its self-imposed borrowing limit, the country could soon be unable to pay its bills. Such a default would, in Yellen’s words, cause “an economic catastrophe.”
It would have serious ripple effects on small and medium-sized businesses. It may become more difficult to access credit, further exacerbating the challenges individuals and companies are already facing because of the banking crisis.
Before the Bell spoke with Dean Zerbe, the national managing director for alliantgroup and former senior counsel and tax counsel to the US Senate Committee on Finance to discuss what that might look like.
This interview has been edited for length and clarity.
Before the Bell: What do the ongoing debt ceiling negotiations mean to small and medium businesses?
Dean Zerbe: There’s a significant number of small and medium businesses that are still waiting for their employee retention credit [a tax credit introduced to encourage employers to retain their employees during challenging economic times] to come back to them. The IRS has a considerable backlog — well north of a million filings are still waiting to be processed. That’s been a real lifeline for small and medium-sized businesses, often to the tune of hundreds of thousands of dollars. If the US doesn’t have money to make those payments and there are further delays that means companies won’t be able to hire or possibly even keep their doors open.
What happens if a US default collides with the crisis among regional banks?
It’s a double hit — we already see credit drying up for small and medium businesses, it’s getting tougher for them to get loans. The atmosphere has been very bad. Another way that these businesses get access to funds is through their tax refunds or through that employee retention credit. So if you’re not getting tax refunds and you’re not able to go to the bank, then there is a bit of a double whammy.
As someone who has been involved in these debt ceiling negotiations in the past, what do you think is happening behind closed doors right now?
It’s really not that difficult to get a deal done, there’s just a lot of posturing going on right now. Congress is dealing with a lot of pressure from a number of groups and everyone’s got to show that they fought for their corner. This isn’t impossible, but I do think that the White House should recognize that Republicans don’t really have a steering wheel and that a game of chicken could get really dangerous.
Do you think bank executives and members of the business community can put pressure on Congress and the White House to come to a deal?
The House Speaker is going to pick up a call from [JPMorgan CEO] Jamie Dimon and he’s going to listen to him. But then he’s going to ask ‘how many votes does Jamie Dimon have in the House of Representatives?’ He’s dealing with the barest of majorities, and he’s working on getting his caucus on board to get votes. So yes, business leaders can advise, but they’re not living in this situation. The White House needs to recognize that they can get finance CEOs to call but that’s not going to sway the House to agree to a deal.
Another way that these businesses get access to funds is through their tax refunds or through that employee retention credit. So if you’re not getting tax refunds and you’re not able to go to the bank, then there is a bit of a double whammy.
Dean Zerbe is alliantgroup’s National Managing Director based in the firm’s Washington D.C. office. Prior to joining alliantgroup, Mr. Zerbe was Senior Counsel and Tax Counsel to the U.S. Senate Committee on Finance. He worked closely with then-Chairman and current Ranking Member of the Finance Committee, Senator Charles Grassley (R-IA), on tax legislation. During his tenure on the Finance Committee, Mr. Zerbe was intimately involved with nearly every major piece of tax legislation that was signed into law – including the 2001 and 2003 tax reconciliation bills, the JOBS bill in 2004 (corporate tax reform), and the Pension Protection Act. Mr. Zerbe is a frequent speaker and author on the outlook for short-term and long-term changes in tax policy, as well as ways accounting firms can help their clients lower their tax bill.