updated: 11/30/2012 12:37:24 PM
A new report from Ball State University's Center for Business and Economic Research suggests going over the so-called "fiscal cliff" would result in Indiana residents paying more taxes and employers hiring fewer workers. The study also predicts unemployment would be more than a percentage point higher each year over the next five years.
November 30, 2012
Ball State economist says going over fiscal cliff could strain Hoosiers’ budgets
If Democrats and Republicans fail to come to an agreement on the looming “fiscal cliff,” Hoosiers’ taxes would increase while their incomes shrink and fewer employers hire new workers, says Ball State economist Michael Hicks.
Fiscal cliff refers to the economic impact of a number of laws that could result in tax increases, spending cuts and a corresponding reduction in the budget deficit beginning in 2013. These laws include the expiration of the Bush tax cuts and spending cuts under the Budget Control Act of 2011, taking effect Jan. 1. Dec. 31.
“A Preliminary Snapshot of the Fiscal Cliff Impact in Indiana,” a report by Ball State’s Center for Business and Economic Research (CBER), examines the impact during 2013-18. The report anticipates that short-run economic impacts would include significant tax increases on household ranging from roughly $1,800 for a household earning $40,000 per year to roughly $6,500 for a household earning $200,000.
The aggregate economy in Indiana would also see a significant impact as overall employment would be 1.2 percentage points lower each year than it would otherwise for 2013-18. The overall size of the economy (as measured by gross domestic product) would decline by 0.9 percent, and personal income would shrink by roughly 1.3 percent.
Hicks points out that spending cuts associated with the fiscal cliff include unidentified defense and nondefense discretionary allocations of roughly $55 billion in each category.
“Cuts to federal programs may be proportionately larger or smaller than the nation as a whole due to lumpiness in likely programmatic cuts. For example, defense cuts may occur at individual locations, leaving Indiana largely unscathed or suffering very deep and disproportionate cuts.”
Hicks says the aggregate U.S. deficit is sufficiently large and a complete repayment of the current debt (principal only) will require a lengthy period.
“For example, the Hoosier share of repaying the debt over the next quarter century is more than $13.2 billion per year, an amount roughly equal to the state’s annual budget. Thus, any effort to repay this debt, even under optimistic economic growth assumptions will be expensive.”
Source: Ball State University