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TN Has a Fiscal Slope Even Without a Fiscal Cliff

While national attention is riveted on Washington’s walk toward a fiscal cliff and the various steps backward, forward and sideways along the path, the matter is receiving some Tennessee attention because of the potential ramifications for the state and local governments.
On the spending-cut side of the fiscal cliff, projections are that Tennessee’s immediate loss of direct federal funding would be fairly modest by governmental standards, about $100 million by most estimates.
The tax increase side of the cliff could have a more substantial, though less immediate, impact. The President’s Council of Economic Advisers calculates, for example, that the increased payment of federal income taxes would translate into about $4 billion less in retail spending by Tennesseans in a year.
A day before that estimate was sent to the media last week, Stan Chervin, a state Department of Revenue veteran who serves as a consultant on state tax matters, spoke to the Tennessee Advisory Commission on Intergovernmental Relations in general terms on how the cliff’s increase in federal income and payroll taxes — actually the elimination of current tax breaks — translates into less disposable income: “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.”

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