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Del. Andrew Serafini: Fiscal cliff is a crash diet

December 02, 2012|By ANDREW A. SERAFINI

One of the main principles of investing is diversification. I believe this also applies to the economy.

Washington County experienced a lack of economic diversification years ago when Fairchild and Mack Trucks were the dominant employers. As these companies did well, the local economy did well.  However, when they declined or left the area (as was the case with Fairchild), the local economy suffered greatly. 

The problem for our country, and also for our state, is an overdependence on the federal government for economic stimulus. Recent figures show that the federal government makes up 20 percent of the economy. Lately, much has been written about the pending fiscal cliff. This would impose cuts in government spending and higher taxes for everyone. The result is less money for consumers to spend and less money being spent by the federal government — the two big drivers behind our current economy.

This will definitely slow the economy, if not send us into a recession. What will this mean for the residents of Washington County?

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At a recent briefing in Annapolis, the state’s analysts indicated that the avoidance of the fiscal cliff could allow Maryland to have a surplus of several hundred million dollars. On the other hand, Moody Analytics estimated the effects of the fiscal cliff sequestration on Maryland could be up to $600 million less and a loss of 113,000 jobs over the next two years.

Regardless of what happens at the federal level, we will face pressure on the budget of almost an additional billion dollars annually within the next five years. This will come from higher debt service, pension costs and expanded health care costs.  Counties and local municipalities have already absorbed significant cuts and may be asked to make further tough decisions.

Whether these cuts come in a few weeks or not, we need to understand that the current path is unsustainable, and we will face some difficult choices sooner or later. The longer we wait, the more pressing the problem will become for our country.  We cannot tax our way out of this, and we also cannot cut spending alone. Some type of entitlement reform will have to be considered as part of the overall plan.

There are many long-term reasons to be optimistic for our economy. These include energy opportunities, reshoring of manufacturing and a growing middle class in the East — with an appetite for products and goods from U.S. companies.  Estimates are that there is approximately $10 trillion sitting in money markets and other cash positions. Individuals and businesses could be investing this in our economy, but the uncertainties regarding taxes and regulations have created significant inertia. Before we can move forward, we must deal with the significant fiscal issues of our government at federal, state and local levels. I have tremendous faith in our citizens to make the right decisions and persevere. We must ask no less of our elected officials at all levels.

Our country is overweight and unhealthy — physically and fiscally. The fiscal cliff is a crash diet. It will fix some of the debt issues but could create quite a shock to our system. Some have advocated for a longer-term solution that would achieve the same results in a more gradual fashion. Unlike the New Year’s resolution that is made with genuine desire but forgotten in time, we must have resolve and shared commitment to fix this now.

Andrew A. Serafini represents Washington County in the Maryland House of Delegates.

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