“The Impact of the Fiscal Cliff on the States” from The Pew Center on the States

The Pew Center on the States released a report on November 16, 2012 titled “The Impact of the Fiscal Cliff on the States”.  The report splits the impacts of the fiscal cliff on the states into the effects from rising marginal tax rates and reductions in federal defense and non-defense spending.  Many states would benefit from increases in federal marginal tax rates.  In the near term, lower federal tax deductions would mean more taxable income at the state level, resulting in incremental state tax revenue.  As far as sequestration, the report estimates 18% of federal grant dollars to the states would be affected. The programs hit hardest would be education, nutrition for low income women and children and public housing. With respect to defense cuts, a state by state analysis is necessary because of the wide variation in spending across different states. That said, large populous states would fare the best. For example, California, Texas and Florida are insulated because of diverse economies and relatively low per capita federal spending.  It should come as no surprise that Maryland, Virginia, the District of Columbia and Hawaii would fare worst, because of the realtively high percentage of state revenue subject to federal grants, defense spending and high concentration of federal workforce.  States marginally impacted include Georgia, Alabama, Alaska and New Mexico. SNW continues to monitor our client's exposure to these states, to the effects of federal spending cuts and potential tax increases.