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Defense cuts could hit Va., Md. tax revenue hard

Wednesday - 3/7/2012, 9:30am  ET

Virginia has aerospace and defense companies to thank for $78.71 million in 2010 taxes paid on state income and total gross revenue, and $75.6 million in individual employee income taxes, according to a study commissioned by the Aerospace Industries Association.

This, combined with other starting findings, leave some concerned about the impact of pending defense cuts on these companies, and subsequently the region's economy.

Deloitte LLP conducted the study, which also found that defense and aerospace companies in Maryland contributed $39.9 million in taxes from state income and total gross revenue, and $91.2 million in individual employee income taxes. At the national scale, the U.S. aerospace and defense industry directly employed 1.05 million workers in 2010 — 3.53 million if you include those working in tertiary industries. Those workers directly employed by aerospace and defense companies received $84.2 billion in wages and paid $15.4 billion in federal individual income taxes, and $1.9 billion in state individual income taxes. The companies themselves generated $324 billion in sales revenue in 2010 and paid $5.5 billion in corporate income taxes on their earnings.

Virginia is among the top 10 states in terms of employment by defense and aerospace companies, with 36,941 workers in these industries during 2010. Those workers each earned an average of $75,661. Maryland employed 26,380 defense and aerospace workers, who earned an average of $90,975. Revenue from aerospace and defense companies totaled $8.27 billion in Virginia and $7.65 billion in Maryland during that same year.

Average wages for those in aerospace and defense "are the second highest to the IT industry, and almost double the national average," said Tom Captain, vice chairman and U.S. aerospace and defense leader at Deloitte. "These middle class wages do spend disproportionately higher on items that are taxable — consumer purchases, restaurant tabs, real estate, investments — with those tax revenues going to local, state and federal governments.

"Logic follows that local communities with high concentration of defense companies would experience proportionately higher impacts due to the higher contributions of tax revenues," he added. "Same goes for corporations that are subject to county, city and state income taxes."

This study comes after another one that was commissioned by AIA on the potential impact on employment, if the federal government moves ahead with plans to trim another $1.2 billion from the federal budget come January 2013. According to that study, which was conducted by Moscow, Idaho-based Economic Modeling Specialists Inc. and Stephen Fuller, director for the Center for Regional Analysis at George Mason University, Virginia could see 122,800 jobs disappear with sequestration.