Maryland executives take Congress to task over ‘fiscal cliff’ -- Gazette.Net


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Several Maryland business executives applauded parts of this week’s congressional agreement on the “fiscal cliff” issue, though some said the situation wasn’t really resolved.

“I don’t feel like there were any real spending cuts, so we will continue to have financial trouble down the road,” said Clark Kendall, president of Rockville investment firm Kendall Capital Management and a board member of the Montgomery County Chamber of Commerce.

One positive is that executives know the new tax rates and rules, so they can plan ahead, he said.

“It wasn’t as bad as it could have been for the middle-class millionaires,” Kendall said, noting that Democrats and Republicans agreed on a higher threshold for higher marginal income tax rates: $450,000 for households after President Barack Obama initially sought $250,000.

Clients of members of the Maryland Bankers Association seek certainty so they can plan for the future, and at least the tax environment was answered, said Kathleen Murphy, president and CEO of the bankers’ group. But there is lingering uncertainty about the sequestration and debt ceiling issues that is a cause of concern, she said.

“We hope that Congress can come together in the next two to three months to address these issues and set us on a course of predictability,” Murphy said.

The issue creates a lot of confusion for consumers, which can affect auto sales, said Tamara K. Darvish, vice president of Darcars Automotive Group in Silver Spring.

“People are so fed up that they’re not even moved by it,” she said. “The bottom line is that everyone’s taxes are going up.”

That’s because the 2 percentage-point holiday on employees’ Social Security and Medicare payroll taxes was allowed to expire, said George Whitehouse, executive vice president and chief marketing officer of Rockville payroll and human resources services company Payroll Network. The FICA withholding tax rate is rising this year from 4.2 percent to 6.2 percent, so an employee earning $50,000 can expect to have about $1,000 more withheld in 2013 than last year.

Kicked the can down the road

Neil Kopit, marketing director for Criswell Automotive in Gaithersburg, said the Capitol Hill wrangling and eventual partial compromise was a case of federal officials “pretty much kicking the can down the road. The truly hard part is figuring out what to cut.”

The deal “fixes exactly nothing,” Veronique de Rugy, senior research fellow at the Mercatus Center at George Mason University in Arlington, Va., said in a statement. Federal spending will rise with or without a potential budget sequester, an automatic budget enforcement mechanism, she said.

“The nation is on a fiscal collision course,” de Rugy said.

The federal government would spend $3.62 trillion in the first year with sequestration, compared with $3.69 trillion without it, according to a Mercatus Center report. The sequester projections are actually nominal reductions in spending increases, not budget cuts, the report says.

Neither party is addressing Social Security and how to fund that with life expectancy rising significantly in recent years, Kendall said.

Federal officials need to agree to reduce spending, which includes changes in programs such as Social Security that would raise the eligibility ages, said Kathleen Snyder, president and CEO of the Maryland Chamber of Commerce.

“It’s a dang shame that the U.S. Congress hasn’t been able to resolve this for some time,” Snyder said. “Everyone knows hard decisions have to be made, and that’s why we elected these people. ... We need to come to the middle. There’s going to be pain for everyone.”

In today’s market, investors have to be sure to maintain tax advantages such as tax-deferred retirement plans and 529 college savings plans, Kendall said.

“They need to have investments that hedge against inflation,” he said, such as foreign securities from countries that don’t carry as high a federal debt as the U.S.

Staff Writer Lindsey Robbins contributed to this report.

kshay@gazette.net