There is a great deal of concern with the January 1, 2013 start date, which addresses a series of federal tax increases and spending cuts. The federal government’s fiscal cliff includes $491 billion in tax increases and spending cuts, and is said to have consequences on many states. Depending on what law makers and President Obama decide to do, according to the federal Information for States, California, Oklahoma, Texas, New York, among others, could see cuts up to $7.5 billion in federal funding in 2013 for 161 grant programs subject to spending cuts.
The direct result of higher taxes and spending cuts could potentially throw this country back into the recession. If President Obama and leaders of both parties in the White House can’t agree on a way to reduce the deficit, there will be about $200 billion in spending cuts that will have consequences for states’ budgets.
So far, the debate has focused mainly on the national budget and the impact it will have on the economy. This includes five tax measures that are due to expire at year’s end. For example, the 2009 stimulus that provides aid to low-income workers and their children. In addition to the stimulus, the payroll tax holiday, which cut tax rate from 6.2 percent to 4.2 percent will be jettisoned if it is not extended.
Four types of spending cuts will likely take effect next year: one being the sequester, which consists of government programs, agencies and defense. along with the debt ceiling compromise, the Medicare “doc fix,” a policy passed by Congress to temporarily postpone the cuts and extend physician payments, and the budget caps are predicted to take big cuts says an article by the Washington Post. The results would keep millions of Americans uninsured and unemployed which in turn would cost states additional money.
According to the Pew Center on the States, allowing the fiscal cliff to occur would reduce personal income and increase tax receipts because of how state codes are linked to federal regulations.
Maine, Maryland, District of Columbia, Rhode Island, and Oklahoma will see deductions in personal and corporate taxes. Though the deductions would not directly affect state budget, it would affect general economic activity according to the PEW Center on the States.
The scheduled cuts in federal grants would affect programs like Head Start, Social Services Block Grant and the U.S. Forest Service. Based on analysis, the affects would increase state-funded income support groups, and nondefense workers would be vulnerable to cuts in salaries and wages.
One program that won’t be affected by the schedule cuts is Medicare. Because the program is funded by the federal government, state budgets will not experience a direct impact from the spending cuts. For others, like the Federal Unemployment Insurance Benefits, for example, is said to have a direct impact on state budgets. In fiscal year 2013, the federally funded unemployment insurance benefits is said to reduce the deficit by $34 billion.
While the fiscal cliff has no significant impact on Medicare, one U.S. government sponsored program for low-income individuals and families known as Medicaid could face drastic measures. Currently, the program covers 70 million Americans, and Obamacare increases that number by 17 million. While nine states have leaned against it, 13 have agreed to expand Medicaid coverage to the elderly, young adults, and low-income families.
Compared to an economic growth of 2 percent, Medicaid has been growing at about 8 percent a year, according to Forbes. By 2020, the spending growth for Medicaid will reach $900 billion from $400. But the decision to not expand the program could lead to fewer people getting coverage.