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Fiscal cliff may send state, nation into economic slump

With the “fiscal cliff” looming, the city of Boston awaits the possible negative impacts that tax hikes and spending cuts could cause to the economy of the Commonwealth.

While a 2013 fiscal budget has yet to be finalized, Professor Graham Wilson, professor and department chair of political science at Boston University, said the possible repercussions of Congress failing to approve a budget could be catastrophic.

“Either it gets fixed in the near future through new legislation, or we will experience a return to recession,” Wilson said.

If the fiscal cliff is not prevented, automatic tax hikes and deep spending cuts will go into effect in the new year as part of the terms for the Budget Control Act of 2012.

Wilson said the chances were slightly higher that Congress would agree on a new budget deal in 2012.

“I’d say 60-40 a deal,” he said. “There is plenty of scope for things to go wrong, but on the other hand, the political costs for any politician seen to be blocking progress would also be very high.”

Sen. John Kerry spoke about how important it is to avoid exceeding the fiscal cliff for Massachusetts’s residents in an emailed statement.

“This stuff is real,” he said in the statement. “It’s not some Washington game.”

Kerry said fiscal cliff repercussions could impact the Commonwealth greatly.

“This is important for Massachusetts because we don’t want middle class taxes going up and we don’t want devastating across the board automatic cuts either,” he said. “The imperative of avoiding recession is real for people.”

Jake Sullivan, an aide in Boston’s office of Intergovernmental Relations, said possible repercussions of the fiscal cliff could include diminished city resources.

“We try to support the many city activities with federal and state resources,” he said. “But given the pending state cuts and this whole issue of automatic cuts if they can’t reach a deal, we are very concerned about future funding.”

Sullivan said federal cuts could have a major impact on small businesses throughout the city.

“One of the main vehicles that the city uses to help small businesses owners is through the community development block grant, which is a federal grant,” he said. “Any kind of federal cuts to those monetary vehicles will really have a big fiscal impact on the small business community.” Sullivan said this grant is crucial to small business development.

“Sometimes in a climate where banks aren’t lending, it is these kinds of loans from the city that really help small businesses get the first brick in their building,” he said.

Some of the automatic tax hikes waiting to go into effect if a fiscal cliff is not avoided will affect businesses.

Brittany Bang, a small business owner who established Audrey’s Pet Supply and Services on Newbury Street in 2010, said she feels the impact of the economy and the fiscal cliff on her business.

“I am scared to death of the unknown,” she said. “It has not been any easy time for anybody but we have really tried to focus on keeping our prices as competitive as we possibly can in this economy.”

Bang said she has seen how the unstable economy has affected her clientele.

“People are trying to save as much as they can and are buying only the necessities and whatever they find at the lowest price and I can’t offer the volume discount,” she said. “I can only hope that people still turn out to support small businesses.”

Sullivan said Boston Mayor Thomas Menino has been working hard to protect the city and small businesses as congress deliberates.

“Mayor Menino and the U.S. conference of mayors have been asking the president and House and Senate leaders to put revenue on the table and have a deal that doesn’t put us back in a recession,” he said. “The stakes are high on this one.”

Kerry said while he thinks a deal will be challenging to achieve, the high stakes will help force an agreement.

“This is a test of whether the partisan, ideological excess of the last four years is actually over,” he said. “We’ve still got a lot of people struggling to pay the bills and pay tuition, and they shouldn’t have to sweat this one out.”

Still, Kerry said politicians on both sides of the aisle are eager to avoid another economic downturn.

“There’s a bipartisan consensus waiting here if reasonableness takes hold,” he said. “And I’ve talked to a lot of Republicans who want to see that happen.”

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