CFOs holding back on hiring as 'fiscal cliff' threat grows

Ace Clearwater president Kellie Johnson weighs in

This is a rush transcript from "Your World," August 7, 2012. This copy may not be in its final form and may be updated.

STUART VARNEY, GUEST HOST: Take a look at this: employers posting the most job openings in June since the summer of 2008. More openings usually means more hiring. But is the government's report ignoring a very real threat that CEOs are not ignoring?

Kellie Johnson is CEO of Ace Clearwater.

Kellie, you say this looming fiscal cliff has you holding back, correct?

KELLIE JOHNSON, CEO, ACE CLEARWATER ENTERPRISES: It absolutely does, Stuart. Thank you for the invitation to be on your program.

VARNEY: OK. You are an aerospace company. You have got 200 employees, I believe. JOHNSON: Yes.

VARNEY: You are not filling positions and you have canceled a half- million worth of machinery orders, correct? All of the above is correct?

JOHNSON: That -- that is correct.

VARNEY: And that is simply because you see this fiscal cliff, that is tax increases and spending cuts, you see that approaching, so you are holding back? That's why?

JOHNSON: That is correct, Stuart.

Not only do I see it, but our customers are demonstrating it through their behavior as well. Ace Clearwater is structured as a Subchapter S company, like so many small and medium manufacturers in the United States. And if these current tax rates are not extended, we will be paying our taxes on the individual rate up to 40 percent on the federal level.

VARNEY: Kellie, that is very important. You are a Subchapter S. You are a pretty large company, but you're a Subchapter S, which means the profits go to you and are taxed as personal income to you, not like any other kind of corporation.

So, you pay personal income tax rates, right?

JOHNSON: That is correct.

VARNEY: And you think there is a good shot that the maximum rate goes from 35 percent to 39 percent come January the 1st, and that is holding you back?

JOHNSON: It truly is.

And couple that with doing business in the state of California, where we are at about a 10 percent. Then we also have the additional tax in the new health care law at about a 3.8 percent. Adding all that together, we are over a 50 percent tax liability that potentially we will be paying next year, coupling that with the potential defense sequestration.

Our customers are not placing orders. We are at the end of three- year-long contracts. We are negotiating new pricing. However, our customers will not be placing orders until 2014.

They are just going to be placing orders as required, and not allowing us to work to long-term agreements. And that is holding us back from making the investments that we need to make to stay competitive, and it also is holding us back on our hiring.

VARNEY: Well, you are right in the firing line of a tax increase in the military cutbacks.

JOHNSON: Yes.

VARNEY: So clearly you are in the bulls eye right there. But, now, who do you blame? President Obama? The Congress? Republicans being unable to come to an agreement? Democrats unable to agreement -- come to agreement? Who do you blame?

JOHNSON: Well, I know, as a business leader, that we are required to make tough decisions every single day. And I hold Washington accountable for their inaction.

VARNEY: Washington generally, Congress, the presidency, politicians generally, right?

JOHNSON: Yes.

I think that they are politicizing this. And it is at the expense of people's livelihoods.

VARNEY: Now, you are a small business operator. Just real fast, the president says you didn't build that, without a lot of help from the government. Can you just give me an idea of your working day, if you don't mind?

JOHNSON: Well, I would like to begin with the history of Ace Clearwater.

It was founded by my grandfather when he moved the family from Oklahoma to California after the Korea War. But the true entrepreneur in the company that my father built, Ace Clearwater, came from his sweat equity, along with mine and the talented and credible women and men at Ace Clearwater Enterprises.

VARNEY: You work hard, don't you?

JOHNSON: My day consists -- we work extremely hard.

(CROSSTALK)

VARNEY: Twelve-hour days?

JOHNSON: And it's a very, very -- very competitive environment that we operate within.

Our customers expect products to be cheaper every year. They expect them to better and they expect the quality to be perfect. And for the industry that we service and represent, there shouldn't be any standards less than that.

The weapons and the sophisticated components that we manufacture for the men and women that wear our uniform and protect our liberties deserve the very best. So not only are we jeopardizing their jobs. We are also potentially jeopardizing the jobs that people have in companies like Ace Clearwater across the country.

VARNEY: Kellie Johnson, we thank you very much for joining us today. Thanks for being with us.

JOHNSON: Stuart, it was my pleasure. Thank you.

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