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New Federal Law Could Worsen State Budget Problems: States Can Protect Revenues by "Decoupling"

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Publication Date: February 2008

Publisher(s): Center on Budget and Policy Priorities (Washington, D.C.)

Author(s): Nicholas Johnson

Special Collection: John D. and Catherine T. MacArthur Foundation

Topic: Banking and finance (Taxation and tax policy)

Keywords: Economic projections; State budgets; Tax code; Recession

Type: Report

Abstract:

The federal “economic stimulus” package enacted on February 13 not only cuts federal taxes, but also threatens to reduce many states’ corporate and personal income tax revenue this year and next year. The potential revenue loss comes at a particularly problematic time for states, because about half the states are already facing budget shortfalls for the current year, the upcoming year, or both; more states will be in trouble if the economic downturn worsens.