State Economies May Be Hardest Hit From Fiscal Cliff Scenario

Wednesday, October 03, 2012 23:55
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State Economies May Be Hardest Hit From Fiscal Cliff Scenario

Tags: Congress | municipal bonds | tax law

States may become some of the biggest losers in the fiscal cliff scenario if Congress fails to develop a plan to reduce the deficit.

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$600 billion in automatic tax increases and spending cuts will happen come January. And states may lose funding and jobs as a result.
 
The US Department of Congress data show public jobs decreased by 1.3% during 2011. Over half of those were city and state administrative positions.
 
Economic conditions in 36 states stand in the balance as Congress waits until the last minute to take action. Adjusted for inflation, 38 state economies are below 2008 levels.
 
The threat of the fiscal cliff also has investors clamoring for tax-free investments even in a low interest-rate environment. States have additional fiscal problems, however, from healthcare benefits tied to unfunded pension plans and decreased tax revenues.
 
Many believe Congress will act to avert the worst effects of the fiscal cliff scenario. Because of the election, Congressional leaders have put action off until the last minute.
 
The session after the election is only two weeks long. If Congress is indeed going to act, it will have to act quickly.

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