published Friday, October 26th, 2012

Over the fiscal cliff: Cuts set to begin in January would slice the budget deficit by $607 billion

Nicholas Luciano, a Spallation Neutron Source central room shift supervisor at Oak Ridge National Laboratory, monitors data Thursday morning. Oak Ridge National Laboratory's Spallation Neutron Source has established a new record as the world's most powerful accelerator based source of neutrons for scientific research.
Nicholas Luciano, a Spallation Neutron Source central room shift supervisor at Oak Ridge National Laboratory, monitors data Thursday morning. Oak Ridge National Laboratory's Spallation Neutron Source has established a new record as the world's most powerful accelerator based source of neutrons for scientific research.
Photo by Dan Henry.
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Should Congress alter planned budget cuts?

Uncle Sam more generous to Tennessee

Tennessee ranked No. 5 and Georgia was No. 6 this summer among the 50 states for the share of their populations receiving food stamps. In July, 21.2 percent of Tennesseans and 20 percent of Georgians participated in the Supplemental Nutrition Assistance Program. That's compared to 15.1 percent of Americans overall on food stamps this summer.

Tennessee got back 27 percent more than state residents paid in federal taxes each year from 1981 to 2005, according to the Tax Foundation study of census and IRS data. In 2005, the most recent complete data compiled by the Tax Foundation, the typical Tennessean paid $5,395 in federal taxes but got back $7,738 in federal spending. That came in the form of programs ranging from Social Security to national parks in the state. Georgia got back about what it pays in taxes for most of the past 25 years, Tax Foundation data indicates.

The federal government pays 66.1 percent of the cost of Tennessee's Medicaid program, known as TennCare, and 65.6 percent of the cost of Georgia's Medicaid program, known as Peach Care. Nationwide, the federal government pays an average of half of the cost of Medicaid.

In metropolitan Chattanooga, 2.7 percent of all workers are employed by the federal government, compared with 2.1 percent of all U.S. workers.

Source: Tax Foundation, U.S. Bureau of Labor Statistics, Office of Management and Budget

Chattanoogans could ring in the new year with higher taxes, government furloughs and benefit cuts that threaten to push the economy back into recession.

Unless Congress acts in its lame-duck session after the Nov. 6 presidential election, budget cuts and tax hikes agreed to as a last resort during congressional budget talks last year will begin hitting most American wallets. Economists project that the effects are likely to throw the anemic recovery into reverse.

"We're growing at a slow, but steady pace. But in January if Congress doesn't back away from the fiscal cliff, all bets are off," said David Penn, director of the Business and Economic Research Center at Middle Tennessee State University.

Once the election is decided, Congress may very well figure out another solution or at least delay some of the most draconian of the spending cuts and tax increases.

The Congressional Budget Office estimates that the end of Bush-era tax cuts and the impact of spending cuts agreed to last year will cut the federal deficit by $607 billion by the end of fiscal 2013, even with the slower growth such cuts and taxes will produce in the overall economy. Many of America's biggest business leaders Thursday urged Congress to both raise taxes and cut entitlements to help reduce the budget deficit and give businesses a more secure financial future.

But those spending cuts will hit home in East Tennessee.

Tennessee's Federal footprint

From the Tennessee Valley Authority to the Great Smoky Mountains National Park, the federal government has reshaped the physical and fiscal landscape of East Tennessee. Uncle Sam's footprint grew during World War II with the Oak Ridge atomic facility, which later included the biggest Department of Energy research laboratory in America.

Such federal facilities mean East Tennesseans are more likely than most Americans to work for the federal government, get food stamps or Medicaid from the federal government or rely upon a federal agency for their power.

Tennesseans, on average, get back about 27 cents more per dollar in services than they pay in federal taxes, according to analyses of government data by the Tax Foundation. Tennesseans' use of food stamps is 40 percent higher than the country as a whole.

"The South gets back more than what it pays to the federal government and, in that sense, we receive a kind of state welfare, practically charity, from the wealthier states in the North," said Ken Ellinger, a professor of political science at Dalton State College.

Need to cut Deficits

But after four consecutive years of trillion-dollar-plus budget deficits, Tennessee congressional members are eager to cut the size of government, even if it means Uncle Sam might have to be less generous to the Volunteer State.

"We'll still get a lot of federal dollars," U.S. Sen. Lamar Alexander, R-Tenn., said during a recent visit to Chattanooga. "What every Tennessean needs to be concerned about -- just like every American -- is continuing to spend money we don't have. We need to provide business certainty so they can invest and create jobs."

Businesses like Volkswagen, which chose this year to put its new Audi production plant in Mexico rather than in Chattanooga, have voiced concern about the U.S. fiscal situation.

"This is why our political environment at the federal level is so important to our economy," Gov. Bill Haslam said during the Southern Automotive Conference in Chattanooga earlier this month. "We've heard this not just from Volkswagen but from many other businesses."

Even if Tennessee gets less Medicaid money from Uncle Sam, Haslam said the state could adjust if it also gets more flexibility in how it runs the joint federal- and state-funded program.

"I honestly believe the closer to home that government is, the better you control cost," the former Knoxville mayor said. "Cities control costs better than states do and states do a better job than the federal government."

U.S. Rep. Chuck Fleischmann, R-Tenn., said the biggest worry about the January fiscal cliff is the prospect of major tax increases through the elimination of the Bush tax cuts and a hike in the payroll tax.

In a television ad that began airing last month, Fleischmann says he has a better plan: "Less government, more jobs."

But the 3rd Congressional District represented by Fleischmann has been the state's biggest beneficiary of programs like the 2009 stimulus bill, which he has criticized as ineffective.

The Department of Energy estimates the government's economic stimulus program pumped $1.9 billion into Oak Ridge facilities and created or saved more than 3,800 jobs at the Oak Ridge National Laboratory, Y-12 and related weapons, research and cleanup facilities.

Energy and parks

"We don't know if we're leveled off or headed down, but there obviously are budget concerns about the future," said Dr. Thomas Mason, director of the Oak Ridge National Laboratory. "We have been going over our operations for the past two years in anticipation of some type of possible cuts."

ORNL has cut more than 400 jobs over the past two years and could face an 8 percent cut in January.

The Office of Management and Budget has declined to specify program or staff cuts coming in January while Congress continues debate on a budget that began Oct. 1.

Supporters of the state's 11 national parks also worry that cuts to the parks' $3 billion budget could hurt tourism.

The Great Smoky Mountains National Park is America's most visited, Park with more than 9 million people last year.

"The national parks generate $10 for every federal dollar we put into them and I think the payback is even greater here in Tennessee," said Don Barger, southeast coordinator for the National Parks Conservation Association.

Gang of Six Solution

A bipartisan coalition of senators, known as the "Gang of Six," is working to find a better alternative to the scheduled budget cuts and tax increases coming in January.

U.S. Sen. Saxby Chambliss, R-Ga., said last week he expects a "tough political slugfest" between Thanksgiving and Christmas over writing a new budget plan. But he appealed to business leaders and others to pressure members of Congress for a solution.

"I don't want you to underestimate your influence or underestimate the fact that we need you involved in the process," Chambliss said.

about Dave Flessner...

Dave Flessner is the business editor for the Times Free Press. A journalist for 35 years, Dave has been business editor and projects editor for the Chattanooga Times Free Press, city editor for The Chattanooga Times, business and county reporter for the Chattanooga Times, correspondent for the Lansing State Journal and Ingham County News in Michigan, staff writer for the Hastings Daily Tribune in Nebraska, and news director for WCBN-FM in Michigan. Dave, a native ...

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