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How ‘fiscal cliff’ could affect Ohio



Published: Mon, December 3, 2012 @ 12:00 a.m.

Columbus Dispatch

WASHINGTON

Call it this decade’s Y2K — except this time, there truly is reason to worry.

Unless President Barack Obama and Congress agree on a sweeping budget compromise by the time the ball drops in Times Square on New Year’s Eve, it could mark the start of:

An increase of up to 5 percentage points in your federal income tax.

Two percentage points more withheld from your paycheck for Social Security taxes.

An estimated 40,000 jobs lost in Ohio because of a reduction in federal spending.

And that’s just the beginning.

Higher taxes combined with dramatic cuts in spending — known as the “fiscal cliff” — could be disastrous to an economy sputtering through recovery.

Even as Democrats and Republicans remain at a standoff on how to resolve the issue, Ohioans are preparing. According to a study by the Tax Foundation, an Ohio family of four earning $72,764 would see an average income-tax increase of $3,437 — a 4.7 percent chunk of their income.

The expiration of a vast list of tax cuts will affect virtually every American who pays taxes. The IRS will shift withholding to accommodate the new tax rates, meaning if you withhold taxes from your paycheck, then you will see less coming in. You’ll also see less because the expiration of the payroll-tax holiday will mean more money withheld from your paycheck.

If you use the child tax credit, you’ll be paying more: The credit will fall from $1,000 to $500 and no longer will be refundable. The so-called marriage tax penalty will return. And about 20 million more Americans might face the Alternative Minimum Tax, originally designed to tax the very wealthy who weren’t paying taxes.

Then there are the federal funding cuts. Because Congress could not agree last year on $1.2 trillion in budget cuts over 10 years, it has instituted sweeping, across-the-board cuts to discretionary programs.

Next year’s cuts will be $109 billion — divided equally between defense and nondefense programs. Though some programs, such as Social Security and Pell Grants, are exempt, cuts would impact almost everything else, including the federal prison system, federal flood-control efforts, the National Institutes of Health and Immigration and Customs Enforcement.

Defense installations such as Wright-Patterson Air Force Base and their contractors — which have been a bright spot in Ohio’s economy — would face a particular hit.

“I think the thing that frustrates me the most is this is a point of time in our country that we need to be as productive as we can possibly be,” said Deborah Gross, executive director of DaytonDefense, an organization representing Dayton-area government contractors.

“And the inadequacy of the government to get these decisions made in a timely manner affects the productivity of working people out here. That’s just shameful. There is nothing good about this for America. Absolutely nothing.”

The cuts have yet to happen, and it’s unclear how the situation will play out. But the uncertainty is a killer. People “literally don’t know what’s going to happen to them in another three weeks,” Gross said.

Steve Kelly, vice president for Columbus-based Battelle’s national-security division, said the uncertainty has created a chilling effect for businesses.

“It’s just ‘Cut everything by X percent,’” he said. “It doesn’t really matter what it is.”

The Tax Foundation, which has studied the impact of the tax increases, estimates that in all, taxpayers will pay $514 billion more next year if something isn’t done.


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