Washington's eleventh-hour compromise to avoid a fiscal cliff of tax hikes and budget cuts could bring a much-needed boost to the Hudson Valley economy in the first quarter of 2013, according to the region's economic development honchos.
The agreement fails to address federal long-term debt and spending issues, but will have a major impact on the tax code. For the moment, averting the cliff is reason enough for cautious optimism, say some local leaders.
"At least there is a resolution now in terms of where everybody stands with their taxes," said Michael DiTullo, president of Rockland Economic Development Corp., a not-for-profit organization. During the last quarter of 2012, he said, many Rockland businesses put plans on hold. "There were deals that weren't closed, loans that weren't even considered and equipment that wasn't purchased," he said.
Financial markets responded to the fiscal cliff news with a surge Wednesday.
As markets closed on Wednesday, the Dow Jones Industrial Average had spiked upward by 308 points, to close at 13,413, up 2.35 percent and the broader S&P 500 index was up 36.23 points, or 2.54 percent, at 1,462.
"Americans in general are sick and tired of being sick and tired," DiTullo said. "They're looking for something to be optimistic about. This little piece of news can act to change people's narrative of what the future is going to be."
REACTION OF THE RICH IS KEY
Once President Barack Obama signs the deal into law, America's wealthiest residents will be hit with their first major tax increase in years. An individual with annual income of at least $400,000 faces a tax rate of 39.6 percent, compared with the 35 percent rate triggered by the George W. Bush-era tax cuts. Local economic development leaders are divided on the actual impact.
"Nobody likes to pay higher taxes, but is it going to affect their hiring plans? No," said Alan Marks, a certified public accountant who is also chairman of the Orange County Office of Economic Development. He said that most of his moneyed clients did not seem particularly upset about the tax hike. "They just wanted the bill to be done," he added. "It wasn't affecting their plans."
But in Westchester, county economic development director Laurence Gottlieb is not so sure. Westchester County has 137,943 households with incomes of more than $100,000, representing about 40 percent of the entire county, according to the most recent estimates from the U.S. Census Bureau.
Between the county's notorious property taxes -- the highest in the nation -- and 2012 state tax levies on the rich, Gottlieb worries that the wealthy will take flight and move elsewhere.
"The question is if 2013 is the year people say, 'Enough is enough,' " Gottlieb said. And even though the cliff deal hammered out the basics for a new tax code, the regulations will be subject to interpretation by tax lawyers and accountants. "There's still a lot of questions out there," he said.
LOCAL ECONOMIES IN PERIL
Because the fiscal cliff deal fell far short of being a comprehensive reform that would have created a fiscal vision for addressing the economy, Americans and local residents soon will be coming to grips with the impact of the piecemeal package that awaits Obama's signature.
Even though the middle class avoided a tax hit, a two-year payroll tax cut was not renewed under the deal and has expired. Paying hundreds of dollars more in federal taxes for 2013 will translate into a direct loss in spending money for consumers, which will hurt the economy, Gottlieb said.
In the months ahead, Washington lawmakers will have to make the hard decisions that they failed to address on this round, Marks said. "We have another big challenge with expense reductions and debt ceiling," he said. "If those things are settled, things will start to improve."