Connecticut would be hard hit by 'fiscal cliff'

Fairfield - With its abundance of high-end earners and military contractors, Connecticut is among states that would be hit the hardest if Washington cannot find a way to avoid the "fiscal cliff," a potentially devastating array of automatic tax hikes and sweeping spending cuts.

This wealthy state that is home to Sikorsky helicopters and Electric Boat submarines would be among the hardest hit in the country because of its reliance on military spending and its higher incomes compared to other states, said Andres Corbacho-Burgos, senior economist at Moody's Analytics. He predicts Connecticut would lose slightly less than 40,000 jobs over the next 18 months if a deal isn't reached and the tax hikes and spending cuts are implemented.

"The effect of that on Connecticut would be pretty severe," Corbacho-Burgos said. "That pretty much would put Connecticut into recession territory again. It means, in effect, going into a second brief recession and therefore putting off the resumption of recovery for at least another year."

Steven Lanza, a University of Connecticut economist, said the state could lose as many as 20,000 jobs, excluding possible defense-related job cuts that the spending cuts might trigger. The state has only regained about 30,000 jobs since the 2008 recession, so the new job losses would largely reverse that progress, he said.

The job losses have ripple effects when unemployed workers reduce spending at restaurants, stores and other businesses, Lanza said. A loss of one job in aircraft manufacturing would take with it another three jobs elsewhere in the economy, he said.

"So it wouldn't take much in the way of additional defense manufacturing job cuts to have a big, negative ripple effect on the rest of Connecticut's economy," Lanza wrote in an email.

Concerns are growing about a Dec. 31 deadline to stop the expiration of Bush-era tax cuts and the start of across-the-board government spending cuts that are the result of Washington's failure to complete a deficit-reduction deal last year. If President Barack Obama and congressional Republicans can't reach a deficit-cutting deal, the changes would hit the economy with $500 billion worth of spending cuts and higher tax rates, if left in place through September.

Many economists worry it could cause another recession.

In Connecticut, the expiration of all the tax cuts would mean sending another $3 billion to Washington, or about 12 percent more than the current $25 billion, said Gian-Carl Casa, undersecretary for legislative affairs for the governor's budget office.

Obama wants tax rates to rise only on income exceeding $200,000 for individuals and $250,000 for couples. In Connecticut, about 65,000 tax filers out of 1.5 million would be affected, state officials said.

Under that scenario, the state would experience slower growth but not the job cuts associated with going over the so-called fiscal cliff, Corbacho-Burgos said.

The talks are creating a host of worries in Connecticut.

Julia Mason, a 33-year-old attorney from Fairfield, said she favors Obama's proposal to raise tax rates on higher earners. She said those rates worked well when President Bill Clinton was in office in the 1990s.

"I prefer not for the rest of us," Mason said, citing concerns about how markets would react to across-the-board tax hikes.

Mason said she's worried spending cuts will hurt programs Americans rely on such as Social Security, Medicare and Medicaid and efforts to protect the environment.

Raising taxes on top earners is not popular with some in a state known for its hedge funds, corporate executives and other high earners.

Terry Betteridge, who owns jewelry stores in wealthy Greenwich and in Colorado and Florida, says business is good but he's fed up with talk of the wealthy not paying their fair share.

"If you've done well you've been vilified," Betteridge said. "I've been max taxed all my life. It's too bad because we carry all the load already."

If taxes are hiked, Betteridge said he's less likely to be able to give money to charity.

"It will affect the way I live a lot," Betteridge said.

Havilande Whitcomb, an interior designer in Westport who lives in the wealthy Southport section of Fairfield, said she understands her taxes may need to rise.

"I don't want my taxes to go up, but if it would solve the problems and get the country back on track, that's what needs to happen," Whitcomb said. "So I'm willing for some short-term sacrifice to get things back to where they should be."

Many are concerned that the tax deduction on mortgage interest could be eliminated, said George Papageorge, a real estate agent in Southport.

"That is absolutely flooring people because without that deduction I think the sale of homes may be drastically reduced," Papageorge said. "It's a major chunk of folks' wages going to pay the mortgage."

The automatic spending cuts also would cost Connecticut $5.6 million of the $79.5 million it's scheduled to get this fiscal year from the heating aid program, which helps nearly 120,000 households in the state.

Even if the automatic cuts do not take effect, Connecticut is expected to see a 10 percent reduction in its defense spending over the next six years, Bob Ross, the director of the state's Office of Military Affairs, said earlier this month. He said the automatic cuts could raise that figure as high as 18 percent, but officials have no way to know which programs would be hit.

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