Although New Hampshire won’t be hit as hard as other states, the fiscal cliff could shrink state revenue – according to a new report from the Pew Center on the States. Because federal and state finances are closely tied, the study finds, federal tax increases and spending cuts will have consequences for all state budgets.
Project director for the Pew Center on the States, Anne Stauffer, says that one in every 3 dollars in state revenue comes from federal grants. Sequester cuts in particular, she says, affect 18 percent of federal funds going to states.
Stauffer says this would affect programs such as education and housing – as well as defense spending, which makes up 2.2 percent of New Hampshire’s economy.
However, Stauffer says,“a state’s vulnerability to these cuts really varies.”
New Hampshire has a high median income, and typically sends more dollars to Washington in taxes than it receives in grants and other benefits. Brian Gottlob – a New Hampshire economist – says this means New Hampshire has less at stake if the fiscal cliff does occur. Poorer states like Alabama — which receive more dollars from the federal government than they produce in federal taxes – may be hit harder.
However, Gottlob says, if middle class tax cuts aren’t extended or modified, New Hampshire’s very broad middle-class population would have to cut back.
The Pew Center on the States notes, however, that the “general economic slowdown that could result if the full fiscal cliff were allowed to take effect would likely overwhelm any of the separate impacts.”