Fiscal Cliff Tax Increases Could Cut TN Tax Take

Estimates of the direct impact on state government if “fiscal cliff” spending cuts take effect is in the $100 million range insofar as initial loss of federal money goes. But a longer term and deeper impact could come from tax increases and their impact on state spending and, thus, sales tax collections.
That was part of the message Wednesday at a Tennessee Advisory Commission on Intergovernmental Relations meeting. Andy Sher has a report.
If federal officials don’t resolve the so-called fiscal cliff, the impact of tax hikes on consumer spending likely will hit sales-tax dependent states like Tennessee the hardest, a tax expert warned Wednesday.
Dr. Stan Chervin said that absent an agreement in Washington, D.C., the expiration of Bush-era tax cuts and newer payroll-tax reductions will leave Tennesseans with less cash in their pockets.
“So what are you going to do with less? You’re probably going to spend less,” Chervin said. “All those things are going to reduce take-home [money] if they go away, and that’s what we use to buy stuff. And that’s how we run the state.”
About 54 cents of each state tax dollar comes from the state sales tax, which is among the highest in the nation. Unlike most states, Tennessee has no broad-based income tax.
…Chervin said federal tax increases include boosts in capital gains rates from 15 percent to 20 percent, higher income tax rates and elimination of the 2 percent payroll tax reduction pushed by Obama. Add them all up and that’s less money for most, he said.
“If you just follow the dominoes, yeah, less take-home [money], less retail sales, less sales tax — boom, boom, boom,” Chervin later told reporters. “So it is kind of scary.”

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