This article was corrected on Nov. 30, 2012. An explanation for the correction appears at the end of the article.
With massive automatic federal spending cuts and tax hikes looming that could push the fragile U.S. economy over a “fiscal cliff” if Congress fails to take action in the coming weeks, Frederick County political and business leaders fear the worst but are hoping for the best.
They worry that the impact will harm the economic recovery in the county, but agree that such a situation is extremely difficult if not impossible to anticipate.
But as Congress and President Barack Obama try to negotiate a way to avoid the tax increases and budget cuts called “sequestration” that are due to take effect in January, county leaders remain optimistic that a deal will be reached.
“I think it’s guarded optimism,” said Ric Adams, president and chief executive officer of the Frederick County Chamber of Commerce. “I hate to think what would happen. I don’t even want to comment. It’s too scary.”
No one will be left unscathed if a deal is not reached. Middle-class workers will see their taxes go up and less money in their paychecks to balance their household budgets. Fort Detrick, the largest employer in the county, as well as small local businesses could suffer. And, local governments and the school system, which depend on federal dollars will also feel the bite.
“It’s a concern for everyone,” Adams said. “Hopefully, Congress can come to an agreement.”
Democratic U.S. Rep.-elect John Delaney of Potomac — who unseated 10-term incumbent U.S. Rep. Roscoe G. Bartlett (R) of Buckeystown in the Nov. 6 election for the redrawn 6th Congressional District, which includes part of Frederick County — is urging lawmakers to reach a compromise.
“With sequestration looming the time is now for Congress to roll up its sleeves, work together, and get a deal done,” Delaney wrote in an email. “There will be grave consequences for the country, for the region, and for Fort Detrick, if we go off the fiscal cliff.”
The National Cancer Institute as a whole would be cut by more than $400 million. Sen. Barbara A. Mikulski (D) of Baltimore and U.S. Rep Christopher Van Hollen Jr. (D-Dist.8) of Kensington, last month, toured the National Cancer Institute’s Frederick National Laboratory for Cancer Research to discuss the budget cuts and their potential effect on Maryland jobs.
The Fort Detrick Business and Development Office, which was established in 2005 to assist companies that have federal contracts with Fort Detrick, has helped some 2,500 companies since 2005.
An official with Fort Detrick said Monday that the U.S. Army base is waiting for an outcome before implementing any changes.
“The Army is not conducting detailed planning for sequestration, or assessing the potential impact of sequestration on specific installations,” Lanessa Hill, Fort Detrick’s public affairs officer, wrote in an email. “We remain focused on implementing the strategy-driven budget we have developed.”
Fort Detrick is the No. 1 employer in Frederick County, with 4,349 employees, according to the Frederick County Office of Economic Development.
“Sequestration” and “fiscal cliff” are the popular shorthand terms used to describe the risky situation the federal government is facing on Jan. 2, when the Budget Control Act of 2011 is scheduled to take effect.
Among the laws set to change at midnight on Dec. 31 is the end of the temporary payroll tax cuts — which will result in a 2 percent increase for American workers — as well as the George W. Bush-era tax cuts for businesses and families.
At the same time, $1 trillion of spending cuts agreed upon to help offset debt-ceiling increases of as much as $2.1 trillion will begin to take effect. That means that more than 1,000 government programs, including the defense budget and Medicare, are in line for deep spending cuts.
A bipartisan congressional “super committee” authorized to specify where the reductions would come from failed to reach an agreement last year, and across-the-board cuts will kick in if Congress does not change the plan.
Van Hollen was part of the congressional super committee that tried and failed to agree on a deficit-reduction, told The Gazette earlier this month that he was “focused 100 percent” on making sure the cuts didn’t kick in.
“It would not be good for the country, and certainly would not be good for Maryland,” said Van Hollen, whose newly drawn district also includes northern Frederick County.
Van Hollen vowed to put forward a proposal to reduce spending by eliminating certain agricultural subsidies and tax breaks for big oil companies, as well as applying the so-called “Buffet rule.”
Named for investor Warren Buffet, the rule would put a minimum tax rate of 30 percent on anyone making more than $1 million a year.
In a report released by Obama’s top economic advisers on Monday, the most painful part of the fiscal cliff would be the end of the middle-class tax cuts, which could take $200 billion out of the economy next year.
“If Congress fails to act, every American family’s taxes will automatically go up, including the 98 percent of Americans who make less than $250,000 a year and the 97 percent of small businesses that earn less than $250,000 a year,” the 14-page report said. “A typical middle-class family of four would see its taxes rise by $2,200.”
Delaney pointed to the Simpson-Bowles commission, known formally as the National Commission on Fiscal Responsibility and Reform, a presidential committee created by Obama in 2010 to come up with ways to improve the nation’s fiscal outlook. The commission’s recommendations, which failed to get the supermajority votes in Congress to be enacted, included a series of spending cuts and increased tax revenues.
“The Simpson-Bowles proposal offers the framework for a balanced, measured approach and a way to move forward,” Delaney said. “In addition to Simpson-Bowles, there are a number of grand budget proposals that are also preferable to doing nothing. We need both sides to come to the table and compromise for the good of the nation.”
As Obama continues to build his case for extending the middle class tax cuts, and Republicans in Congress fight to keep the tax cuts for those families earning more than $250,000 a year, it’s business as usual in Frederick County — at least for now.
“Without knowing the specifics, it is hard to know how it will impact businesses,” said Helen Riddle, the director of the Frederick County Business Retention and Development Division. “Certainly, [we’re] concerned about those businesses that receive [Department of Defense] funds.”
There are 78 businesses in the county that receive federal contract dollars, according to GSAContractsWon.com, a website that provides information on companies across the country that receive federal dollars. From 2004 to 2011, $189 million in federal funds was awarded to 2,320 companies in Frederick County.
Frederick County Board of Commissioners’ President Blaine R. Young (R) said he is confident a deal will be reached.
“They will figure it out,” he said. “The question is, how they will work it out. We need comprehensive tax reform across the board. I think everybody would be willing to chip in if they knew the government would get their spending habits under control.”
While the county stands to lose some federal dollars, Frederick County Public Schools could face up to $1.3 million in potential federal aid cuts for the 2013-14 school year if the automatic cuts take effect, according to school officials.
The fiscal cliff could reduce federal funding to Maryland by more than $117 million in fiscal 2013, according to state estimates.
The White House report also warned that the holiday season is not the time to increase taxes on the middle class.
“The expiration of the middle-class tax cuts could lower consumer spending by $200 billion next year,” the report said.
Tom England, owner of Dancing Bear Toys and Gifts in Frederick, isn’t too worried.
England said he is choosing to concentrate on a profitable holiday season because the prospect of a fiscal cliff raises too many questions and unknowns.
“I really hope they prevent something like that from happening,” he said. “We just don’t know. ... We’re just focusing on the business.”
Staff Writer Daniel Leaderman contributed to this story.
This article was corrected to include the accurate figure for potential cuts to the National Cancer Institute. As a whole it would be cut by more than $400 million.