Some Elements Of Fiscal Cliff Could Add To State Coffers

Nov 27, 2012

A new report says reduced tax credits from the fiscal cliff could lift revenue in some states, although the larger, negative effects will still outweigh the boost.
Credit Les Chatfield/Flickr

The White House issued a statement Monday warning that taxes would go up for middle-class families by more than $2,000 on average, if Congress does not prevent the “fiscal cliff”—the series of automatic spending cuts and expiring tax breaks scheduled for the end of the year.  

Part of the fiscal cliff is reducing federal tax credits, including the Earned Income Tax Credit and a credit for child care. Both are big for the middle class. But, the Pew Center on the States released a report earlier this month suggesting the reduction of those credits could actually add to North Carolina’s coffers.

“When these federal credits are reduced, because of the way North Carolina is linked to these credits, North Carolina could see an increase in revenue,” says Anne Stauffer, one of the architects of the Pew report.

Stauffer and her colleagues released a state-by-state look at how the cliff would affect state finances. The report also looks at how cuts to other federal spending, like grants and defense might affect states. Again, North Carolina falls below the national average. But, Stauffer cautions that doesn’t mean Carolinians should root for lawmakers to take us over the cliff.

“If the country were to go over the fiscal cliff, the CBO has projected a general economic slowdown that would likely overwhelm the effects of any of these separate components,” says Stauffer.

Stauffer hopes the report will help states plan for the fiscal cliff. But, it also has the side effect of adding an unusual phrase to conversation: more money.