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Shelby’s leaders not worried about 'fiscal cliff' – for now

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They say impact would be felt more on individual levels

By Todd Martin

There is no doubt that Shelby Countians, like the rest of the country’s citizens, will feel the thud if our nation’s leaders can’t keep the government from toppling over the fiscal cliff by Monday. And our local leaders are much more worried about the individuals in the county than they are about our local governments.

“We’ve made several adjustments over the last few years to become more self-sufficient, and most grants are either dried up or there isn’t that much there, so we’re not really reliant on federal funding,” Shelby County Judge-Executive Rob Rothenburger said. “EMS could take a hit, with Medicare reimbursements, but those have been going down for the last few years, so most of the adjustments we would’ve made for federal spending have already happened.”

Shelbyville Mayor Tom Hardesty said his city’s budget can stand on its own.

“The funding of some grant programs we’re involved in could be hurt, but nothing immediately, but the day-to-day budget stands alone,” he said.

The fiscal cliff was put in place last year as a failsafe after the Democratic-controlled Senate, President Barack Obama and the Republican-controlled House of Representatives were not able to come to an agreement on tax cuts and spending to help reduce the national debt, which will hit another debt ceiling in March.

The idea from the bipartisan, select committee that put the drastic measures in place was to make the consequences so difficult that there was no way a compromise would not be made.

However, that has backfired.

The Republicans have taken the stance of no tax increase for any level of income and a demand for more government cuts against President Obama’s plan of fewer cuts and a tax increase for those making more than $250,000 (or $200,000 for a single taxpayer). And despite discussions of potential compromise, so far neither side has completed a deal.

Therefore these drastic measures will go into affect:

  • Taxpayers who qualify for the alternative minimum tax losing it.
  • The child tax credit drops from $1,000 to $500.
  • The tax cuts enacted by President George W. Bush in 2001-2003 would end.
  • New taxes for the health-care reform act would be added.
  • Government spending would be cut of 10 percent across the board, which would eliminate services and funding for many programs.

Economists have forecast that all these steps would have a recession-escalating impact.

Rothenburger said the biggest immediate effect on the county would come in payroll.

“The Social Security and Medicaid taxes will go up about two percent on the employee side, so we’ll have to make that adjustment in payroll for the deductions,” he said. “That’s where the impact is going to be the worst, on the employee side. Since salaries have stayed stagnant over the last few years, now people could be forced to lose a higher percentage through taxes.”

And the Social Security and Medicaid taxes aren’t the worst.

The median household income in Kentucky is almost $66,600, and if all the tax cuts are dropped, then taxes on the median income would rise more than $3,400 in 2013, an increase of 5 percent.

White House estimates also show that consumer spending would fall by about $2.6 billion in Kentucky alone.

However, there are several steps that could be taken to avoid the cuts in spending and increased taxes.

A short-term patch could be put in place while lawmakers continue to work on a compromise, a solution, although unlikely, could be reached by Monday or, the most likely scenario, lawmakers could allow the tax cuts to expire and the funding cuts to be enacted, sending the country over the cliff.

Then, when a deal is reached in January or February, it could be enacted retroactively to the first of the year.

That way, because the tax cuts would have expired, officials would be voting for tax cuts instead of tax increases, which they would be employing if action is taken before Monday’s deadline.

However, that could trigger different problems.

“The fiscal cliff issues may not directly effect us now, but indirectly, down the road, it could eventually trickle down to the city and county governments,” Hardesty said.

Added Rothenburger: “With the federal government, there are always surprises.”