What Would the Fiscal Cliff Mean for PA?

The fiscal cliff is more than just a federal issue.  The automatic spending cuts called for in federal sequestration could mean $60-million fewer federal dollars for Pennsylvania next year, and that’s just half of this so-called cliff. 

Without Congressional action, a variety of tax increases will also take effect as of January 1st, which could raise a combined $600-billion dollars in federal revenue in 2013.

Those tax increases could have serious implications for the Pennsylvania economy.  “Pennsylvania comprises about 4% of US economic activity, so if we apportion that number to Pennsylvania, a very rough order of magnitude might suggest a tax increase of $22-billion dollars,” Independent Fiscal Office (IFO) Director Matthew Knittel explained on Radio Smart Talk.  “[That’s] a very rough order of magnitude and a worst-case scenario.” 

Knittel believes Congress will take some action by the end of the year, just not full action, so he says a more realistic economic impact on PA would be in the $8 – $20-billion dollar range.” 

The payroll tax cut alone would mean $5-billion fewer dollars for PA taxpayers.  “If one assumes that roughly 70% of that would have been spent, and roughly 40% would have been spent on taxable items, that tax increase suggests a roughly $70 – $80-million dollar reduction in sales & use tax revenues,” Knittel says. 

The potential impact of the fiscal cliff was included in the IFO’s recently-released Economic & Budget Outlook, which projects lackluster growth in the Pennsylvania economy.