Skip to comments.‘Fiscal cliff’ could mean $22 billion more in taxes for Pa. residents
Posted on 11/22/2012 3:07:54 AM PST by DeaconBenjamin
HARRISBURG Pennsylvanians will face billions of dollars in higher taxes unless Congress acts by the end of the year to defuse a threatening combination of tax increases and spending cuts contained in the so-called fiscal cliff.
A recent report by the states Independent Fiscal Office, Pennsylvanias version of the federal Congressional Budget Office, suggests the fiscal cliff would drain billions from Pennsylvanias economy, putting a strain on state tax revenues and the state budget. Based on estimates from the Tax Policy Center, a nonpartisan think tank in Washington, D.C., the IFO projects the fiscal cliff will raise federal taxes by $536 billion with about 4.1 percent of that total, or $22 billion, coming from the pockets of Pennsylvania taxpayers.
Nationally, analysts believe the fiscal cliff will substantially reduce economic growth and may tip the nation into another recession in 2013.
Matthew Knittel, director of the IFO, said he expects the consequences of the fiscal cliff in Pennsylvania to mirror whatever happens nationally.
If none of these (tax cuts) got extended, it would have a significant drag on economic growth, and there is no reason to think the effect in Pennsylvania would be any different, he said.
Knittel said the $22 billion tax hike is the worst-case scenario, because most experts believe a mixed bag of tax cuts and spending would be extended into 2013.
The fiscal cliff is a combination of the expiration of the Bush-era tax cuts and a cost-cutting maneuver known as sequestration, enacted by Congress during the tense battle over raising the debt limit in 2011.
The expiration of the tax cuts would mean higher income taxes for all Americans, along with higher taxes on capital gains, larger payments for Social Security and a 50 percent reduction in the child tax credit.
On the spending side, sequestration would cause about $110 billion in cuts at the federal level, resulting in the loss of about $60 million in federal grants for Pennsylvania. It would not affect federal funding for Medicaid or transportation, but it could hit grants that fund defense, education and other subsidies to states.
The question facing Congress is: What stays, and what goes?
Whatever outcome congressional leaders agree to will have significant effects on state governments, said Anne Stauffer, a project director for the Pew Center on the States, a national nonprofit think tank based in Washington, D.C.
The fiscal cliff is not just a federal issue, Stauffer said. The implications for states should be part of the discussion so that problems are not simply shifted from one level of government to another.
Many states use the federal deductions to determine taxable income at the state level, meaning the end of some federal deductions could cause higher income taxes at the state level, as well.
Fortunately for Pennsylvania, the state uses a flat income tax with few deductions not linked to the federal tax system, so taxpayers in the Keystone State will not be hit with that same double-whammy of higher taxes, though it would still have to deal with the loss of 7 percent of federal grants, about in line with the national average.
Even if Pennsylvania dodges part of the tax bullet, higher federal taxes on payroll and income means less cash in consumers wallets and that translates into lower sales tax collections at the state level.
Knittel said it is likely the payroll tax cut wont be extended. If so, Pennsylvanians paychecks will be a total of $5 billion lighter next year, after the rate jumps from 4.2 percent to 6.2 percent.
The payroll tax increase means the average household in Pennsylvania with an income of $50,000 would face $1,000 in additional taxes, even before higher income taxes or other costs are figured.
Since most residents would use those extra dollars to purchase goods and services, the trickle-down effect is that state sales tax coffers will miss out on about $80 million of future revenues, Knittel estimated.
He also expects income tax rates to climb for high earners President Obama wants to extend the cuts for taxpayers making less than $250,000 per year, but allow them to expire for people above that threshold.
But as bad as the tax hikes could be, Knittel and Shaeffer agree the uncertainty created by the fiscal cliff scenario is worse.
Business leaders say the unknowns in the tax code are stalling the tentative recovery.
It has forced employers to stand in place, said Kevin Shivers, executive director of the Pennsylvania chapter of the National Federation of Independent Businesses, which represents small business owners. It is preventing them from hiring, it is preventing them from expanding.
State policymakers are also stuck in neutral, unable to plan for 2013 because they dont know what parts if any of the tax increases and spending cuts will become reality.
Speaking to reporters Monday, Gov. Tom Corbett said the pending tax changes from the fiscal cliff were putting a strain on budgetary plans in Pennsylvania and in other states. He called the tax increases caused by going over the cliff overwhelming.
The fiscal cliff is frightening, Corbett said Monday. I fear for the economy. I fear for another recession.
Its all up to Congress now, but federal policymakers are also stuck between the proverbial rock and hard place.
The CBO estimates allowing the nation to go over the cliff would cause GDP growth to drop from 2.2 percent to 0.5 percent during 2013, throwing the nation back into a recession and sending unemployment back above 9 percent.
But avoiding the cliff has its problems, too.
A separate CBO study concludes that dodging the fiscal cliff would keep the economy out of recession in 2013, but adopting this policy without imposing comparable restraint in future years would have substantial economic costs in the long run.
Stauffer summed up the mess facing states, businesses and taxpayers.
Right now there is just not a lot of certainty about what will happen with the fiscal cliff, she said.
Remember, kids, there ain’t a revenue problem in DC... there’s a SPENDING problem. Simple solution is to stop spending money we don’t have. Way past time for the Balanced Budget Amendment... and nothing allowed to be off-budget. Nothing.
Pennsylvania firmly voted for obama and every other left wing liberal running for president since 1988.
Elections - you get what you vote for.
The blues for a blue state!
I don’t give a rodent’s hinny. Where’d they think all the “free” stuff the fed “gives” comes from?
What you say is true but the Dems and their union-thug allies will blame the Republican governor and the Republican controlled state house and senate. Of course, the voters will believe them and the state will become even bluer in 2014.
The biggest impact here would be due to the Bush tax cuts expiring. The very cuts that we were all told were “only for the rich” and “what got us into the mess in the first place”. So what’s everyone all worked up about?
They voted for it, they got it. I didn’t vote for it, neither did my red state, but I get hit too. I don’t care if people want to do that to themselves, but damn them for doing it to me too.
This is certainly what the majority in Pennsylvania want. Same as the majority in lots of other places.
But quite frankly many here are not even interested.
But @ Lunch with my CPA friend yesterday, I got even more info...
The 2003 Bush Tax Cuts expire too, preferred dividends, gone.
But more importantly the MACRS Depreciation Schedules Change, 179 Depreciation goes away as does Accelerated Depreciation.
Many small business men and women who are struggling on the margins and know this, and this on top of all the regulatory burden of Obamacare and the fact they can't get bank loans post Dodd-Frank many can't see themselves as "going forward organizations" and will close down on 12/31/12. IMHO watch for unemployment numbers for December to make a spike that will shock many. Elections have consiquences, talk to your CPA's their is a $&!+ storm coming and no one sees it...
Watch for Bohner to come out of the WH with another TARP/Budget contract act type deal that he forces on his members. It will be so smelly that Pelosi will vote for it as she did the others.
Oh, and expect another House floor speech by Ryan claiming it is a historic bi-partision victory.
I’ll pay it. Cheerfully. In return I get to hear the sweet sound of pigs being stuck from the automatic spending cuts and across the board tax increases.
It is about time this gravy train was derailed.
The policy of "kicking the can" down the road is our traditional approach to revenue and spending problems. Just increase the spending limit to infinity, continue to print money, borrow money, increase taxes, and blame Bush will work forever, according to the Democrats. Yes?
I’m interested, but I don’t see where there’s anything I can do about it, except hunker down as best I can.
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btw - might be away for a few days. My Mom is ill & I'm traveling to be with her. Please pray for us.
Prayers up for Her and you. (I lost my Mom on May 2nd.)