While Congress was able to reach a last-minute stopgap solution Tuesday to avert the so-called “fiscal cliff,” the future of the region’s economy is still somewhat uncertain.
George Mason University’s Center for Regional Analysis had projected that Virginia could lose more than 200,000 jobs if the across-the-board budget cuts known as “sequestration” had gone into effect, largely because of the significant amount of defense spending that occurs here.
Now, Congress has postponed any potential cuts for a few months and set new tax rates.
While the sharp decline of sequestration was avoided, there also won’t be any growth in federal spending over the next few months. Federal agencies won’t be laying off workers, but they are more likely to leave positions vacant and to hold off on issuing new contracts for the short term, said Stephen Fuller, director of the Center for Regional Analysis.
“That dampens the economy’s growth expectations for at least the first half of 2013,” he said.
Fairfax County is the No. 1 county in the country for federal contracting, and those businesses are not able to plan as long as the federal budget remains in limbo, Fuller said.
While having certainty on tax rates is helpful to the economy, the new tax rates could also slow down economic growth.
“The good news is that people now know what their tax expense is for 2013,” Fuller said.
The down side of that is that all employed people will see at least a slight decrease in their take-home pay, due to the expiration of the payroll tax reduction that was in effect the last two years, and higher-income people will experience a higher tax rate.
“There will be a little less retail spending than there would have been,” Fuller said.
However, once the budget uncertainties are resolved later this year, Fuller expects the region’s economy to begin to pick up once again.
“Fairfax is probably the best positioned to grow strongly,” Fuller said.
The county’s location and quality of life coupled with the advent of the 495 Express Lanes and the Silver Line put Fairfax in the best position to accommodate job growth, he said.
“When we get rebalanced in ‘14 and ‘15, things are going to look pretty good,” Fuller said.