Tuesday, January 1, 2013

Florida has a lot at stake in fiscal cliff outcome

Palm Beach Post Washington Bureau
Washington — 
Florida stands to lose 80,000 jobs, long-term unemployment benefits keeping families afloat and tax breaks worth about $2,000 for a middle-income family as leaders in Washington charge to a New Year’s deadline with no deal to stave off historic tax increases and spending cuts.

Representatives in Congress and the White House have known for months that this deadline, known as the fiscal cliff, was coming. Yet politics have gotten in the way of any meaningful compromise.
Leaders of both parties met at the White House on Friday. Senate leaders emerged saying they’d try to draft a short-term deal they could bring to Congressional Democrats and Republicans over the weekend.
As the deadline has ticked closer, consumer confidence has dropped and Americans are feeling a familiar sense that Washington may fail them again.
The uncertainty poses particular danger in Florida, where the health of the economy relies so heavily on spending. With no income tax to fill state coffers, use and sales taxes fund 74 percent of Florida’s general revenue, according to Florida Tax Watch.
And when residents don’t know how much of a tax hit their paychecks will take and business owners don’t know which tax breaks might expire, they don’t spend, said Jerry D. Parrish, director of The Center for Competitive Florida at the Florida TaxWatch Research Institute.
“The U.S. going over the fiscal cliff would place Florida’s economy and recovery in peril,” Parrish said.
If Washington does not reach a deal, in 2013 Americans will face an unprecedented tax increase of $500 billion, as most of the tax breaks enacted since 2001 expire. At the same time, the national budget will take a hit of about $109 billion in across-the-board cuts to defense and domestic programs.
Even with the cuts set to take effect in a matter of days, some members of Congress suggest going over the cliff won’t be so bad. Some of the tax breaks that expire, for instance, won’t hurt Americans until they file their income taxes in 2014.
Former U.S. Sen. Mel Martinez, R-Fla., said he just doesn’t understand the mindset of his one-time colleagues.
“I think it’s just a leadership failure across the board,” said Martinez, who is co-chairman of the Florida chapter of the Campaign to Fix the Debt.
He noted that most analysts predict that the mix of spending cuts and loss of income to families will drive the economy back into recession.
Janee Murphy, another member of the Florida chapter, said many cuts will also quickly affect working families.
“We here in Florida will immediately feel this,” she said.
Murphy points to programs funded by federal grants, such as those that support public housing, loans for college students and nutrition programs for low-income women and children. There’s also the expiration of a payroll tax holiday that would affect most Americans.
“Unfortunately, our Congressional members are in the bubble,” she said. “For anyone to say we’re not going to feel this immediately, shame on them.”
State budgets are also at risk with the loss of federal funding.
“States have to balance their budgets,” said Anne Stauffer, project director for the Pew Center on the States. “They can’t run a deficit like a federal government.”
The automatic cuts are expected to shave roughly 8 to 9 percent off programs across the board. In Florida, federal grants that are subject to the cuts make up about 7.7 percent of the state budget, a disproportionately high share. On average, states get about 6.6 percent of their total funding from such programs.
“It puts state policy makers in a tough position of making difficult budget choices when they’ve had several years of tough budget choices,” Stauffer said.
If there is a silver lining for Florida, a Pew Center study found that compared with those in high tax states, residents of Florida may see less of an assault on their paychecks. Some states that levy an income tax tie their tax policy to federal law, meaning residents will face not just a federal tax hike if there is no deal in Washington, but a state increase, too.
Some of the automatic spending cuts may also affect Florida less than other states, the report found, because federal spending on salaries and equipment, as an example, make up just 3.6 percent of the Florida budget, compared with a national average of 5.3 percent.
But even the loss of some defense spending could be critical, particularly in north Florida where there are many defense jobs and military bases, said Parrish.
“It’s some of our highest paying jobs that we’re likely to lose,” he said.
Plus, Florida has already suffered a significant loss of defense spending in recent years.
Between 2009 and 2011, Florida lost more than $984 million in defense contract awards, he said.
“Further cuts will place even more pressure on defense contractors and their subcontractors, many of whom operate small businesses that would likely be put out of business,” Parrish said.
He quoted a Center for Regional Analysis report that found Florida risks 41,905 defense jobs if Congress and the White House cannot reach a deal.
Florida will also see less of a pinch if Congress cannot put off the application of the Alternative Minimum Tax on millions more American households. Congress has repeatedly patched this tax, which does not take inflation into account, to ensure that it does not weigh on middle class families. If that patch expires, it will disproportionately affect states with higher wages.
While some wealthy families would surely be affected, the median income in Florida is too low to make that tax a big issue for the state, analysts at the nonpartisan Tax Foundation said.
But Florida still has plenty at stake.
The state fell into recession faster than most of the nation and it lagged there longer.
“Ours was 35 months versus the 19 months” the nation experienced, Parrish said.
Improvement in the real estate market, a linchpin of the Florida economy, could also stall if spending does, Martinez said.
Movement toward a deal is now in the hands of Martinez’ former colleagues. For the good of the nation, he hopes members can lay their differences aside.
“I’m like everyone else, disappointed, frustrated,” he said. “It just seems to me we should be able to put politics aside.”

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