Fiscal cliff compromise will cost Florida billions

Congress may have kept the nation from going over the fiscal cliff, but it failed to avert a multi-billion dollar hit to Florida’s struggling economy.

The decision to let the 2010 deduction in the Social Security payroll tax expire will cost Floridians an estimated $6.5 billion, said Sean Snaith, director for Institute Economic Competitiveness at the University of Central Florida.

With 7.1 million Florida households seeing a tax increase, the result will be a contraction in the state economy, Snaith said.

“It’s going to provide a headwind in terms of our recovery that’s less money spent on child care, groceries or clothing,’’ Snaith told the Herald/Times. “The net effect is it’s going to be a drag on growth.’’

The payroll tax was temporarily reduced in 2010 from 6.2 percent to 4.2 percent at an annual cost of $120 billion, but it expired Dec. 31, 2012, when neither side in Congress moved to extend it.

That means that every paycheck will see a slight tax increase starting this month. The median Florida household, which earns $45,000 a year, will pay $900 more in taxes in 2013, although the increase could be offset by other tax deductions kept in the fiscal cliff compromise for middle class Americans.

Opponents said the compromise fell short because it did not do enough to resolve the nation’s debt crisis or reduce spending cuts. Supporters said it was necessary to avoid a fiscal calamity.

“The American people cannot afford, nor do they deserve, this massive New Year’s tax hangover,’’ said Rep. Mario Diaz-Balart, R-Miami, one of five Florida Republicans who joined with eight Democrats in the congressional delegation to vote for the compromise. “While this bill has its flaws, it immediately and permanently cuts taxes on 98 percent of the American people and 97 percent of small businesses.”

Others Republicans voting for the bill: U.S. Reps Bill Young of Seminole, Ileana Ros-Lehtinen of Miami, Ander Crenshaw of Jacksonville and Vern Buchanan of Sarasota.

Fourteen Florida Republican congressmen and U.S. Sen. Marco Rubio voted against it.

The payroll tax is just one of the hits Florida will feel from the compromise. Another will be a slow but steady impact on the state’s safety net hospitals.

Under the bill, Congress voted to halt a $30 billion cut in payments to physicians who treat Medicare patients that was scheduled to take effect this week. The solution calls for hospitals that treat those patients to pick up half the tab over the next 10 years.

That worries Florida’s public and teaching hospitals, which serve a larger percentage of Medicare patients than hospitals in other states. These Florida hospitals are already facing $654 million in annual cuts thanks to the Affordable Care Act on top of $1 billion in cuts imposed on them by state lawmakers over the past decade.

The cuts imposed by Congress will “further strain our state’s healthcare safety net for the poor and uninsured,’’ said Ron Bartlett, spokesman for the Florida Alliance of Safety Net Hospitals.

The bill also provides temporary relief to Florida’s military bases which were in line to sustain deep program cuts as part of the $109 billion in across-the-board spending reductions set to start taking effect this week. Congress postponed the cuts to Pentagon and domestic agencies for two months but those proposals are likely to be revived again.

One group to benefit from the New Year’s Day compromise: Florida’s unemployed.

Congress extended the federal emergency unemployment compensation program, which was due to expire Jan. 1, for another year.

That means about $1.4 billion will be injected into the Florida economy, where long-term unemployment has been particularly problematic. Nationwide, the long-term jobless rate is about 40 percent; in Florida, it’s 50.6 percent.

In Florida, nearly 119,000 people are eligible for emergency unemployment assistance, which offers weekly benefits of up to $275 beyond the 19 weeks provided by state unemployment compensation.

Gov. Rick Scott had no response to the tax cut deal, but said Wednesday he would like to see Congress focus its efforts on cutting spending.

“I have never seen a tax increase that creates jobs,’’ the governor said in a statement. “Businesses create jobs and we must start cutting government spending to live within our means.

U.S. Rep. Frederica Wilson, D-Miami, who voted for the fiscal cliff deal, warned that while the nation averted one cliff, danger persists ahead as Congress must decide what to do about the postponed automatic spending cuts and the fact that the federal government has reached its debt limit. She said she fears conflict ahead as “Republicans hold out for spending cuts to some of our entitlements that Democrats hold so dearly.”

“This is what you call a temporary fix,’’ Wilson said. “This is just enough to not take us over that cliff.”

Miami Herald staff writer Toluse Olorunnipa and Tampa Bay Times staff writer Alex Leary contributed to this report.