States May Bear Brunt Of Costs Of Fiscal Cliff Negotiations Even As They Continue To Grapple With Their Own Budget Issues From 2008

For example, if federal tax deductions are capped, more income may be taxed at the state level, giving states higher tax revenues.
On the other hand, reductions in federal spending will affect federal funding. Some states get as much as one-third of their budgets from federal grants.
Growth in Medicaid spending, federal deficit reduction, underfunded pensions, lower tax revenues, and an eroding tax base are just some of the issues states continue to face.
Economists are recommending that states become much more transparent, give better disclosures, better forecasts, and do a better job of disclosing pension risk.
This will help investor confidence and also better position them to negotiate solutions as the economy continues to improve.

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