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Pew – The Impact of the Fiscal Cliff on the States

“The state impact of the fiscal cliff’s expiring federal tax provisions and scheduled spending cuts is missing from the national discussion. This study finds that the effects on the states vary greatly based on the extent to which states are tied to the federal tax code and federal spending. The fiscal cliff looms large in current fiscal policy debates. Discussions about the effect of the tax increases and spending cuts included in the fiscal cliff have focused on the national budget and economy. But federal and state finances are closely intertwined, and federal tax increases and spending cuts will have consequences for states’ budgets. For example, almost all states have tax codes linked to the federal code.

  • For at least 25 states and the District of Columbia, lower federal deductions would mean more income being taxed at the state level, resulting in higher state tax revenues.

  • At least 30 states and the District of Columbia would see revenue increases because they have tax credits based on federal credits that would be reduced.
  • At least 23 states have adopted federal rules for certain deductions related to business expenses. The scheduled expiration of these provisions would mean higher taxable corporate income and hence higher state tax revenues in the near term.
  • Thirty-three states would collect more revenue as a result of scheduled changes in the estate tax.”

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