LCSN: Fiscal cliff could cause recession and economist says most ‘underestimate’ impact of cuts in NM

December 2, 2012. Retrieved online December 3, 2012 from Brook Stockberger, Las Cruces Sun-News

LAS CRUCES — The impending and much-discussed “fiscal cliff” could:

  • lead to nation-wide recession
  • cut your take-home pay
  • slice as many as 20,000 jobs from the New Mexico workforce


The term fiscal cliff refers to the fact that, at the start of the new year, severe austerity measures are set to kick in with about $500 billion in tax increases and $200 billion in spending cuts.

New Mexico State University economist Chris Erickson said that President Obama and Congress need to find common ground to prevent the measures from taking place.

“If they don’t find a solution, the prospects are pretty bleak,” Erickson said. “Falling off the fiscal cliff will almost certainly result in a recession next year.”

Richard Adkisson, head of NMSU’s department of economics, said that the impact of inaction on the issue will lead to “widespread economic consequences.”

“Reducing the federal deficit either by reducing spending or increasing taxes will have impacts in any case,” Adkisson said, “but the adjustments can be managed better if compromise is reached and a longer-term plan for deficit/debt reduction is put in place.”

Tax increases

For a variety of reasons, a fall over the fiscal cliff could lead to fewer dollars in your pocket. Here are some of the reasons why:

  • the 2001/2003 Bush tax cuts, which include individual income tax rates, will expire
  • the 2009 stimulus, which includes the Earned Income Tax Credit, will expire
  • the payroll tax holiday that cut the payroll tax rate on employees, will expire
  • the Alternative Minimum Tax, a tax intended for people with higher income, is, as The Washington Post reports, not indexed for inflation and would hit a lot of middle-class taxpayers if not fixed before next year.

So that could lead you to higher taxes on a variety of fronts.

Jim Peach, who also teaches economics at NMSU, said that these measures would touch everyone. The less money people have the less they are going to spend and the economy will slow on a national and local level.

“A no-deal scenario is likely to have serious employment and consumer spending impacts on the local economy,” Peach said. “Everyone would be affected.”


Better known as spending cuts, the sequestration part of the fiscal cliff involves deep cuts on many government programs and spending, like Medicare payments to providers. This is a particular concern to New Mexico because so much of the state’s budget relies on government spending.

“The University of New Mexico estimated that the state could lose 20,000 jobs in 2013 if no fiscal deal is reached,” Peach said. “No one can predict the job losses with certainty but the UNM estimates are very reasonable.”

Erickson agrees the cuts would be very damaging because, among states, New Mexico is the sixth largest per-capita recipient of federal dollars.

“We are heavily dependent on federal spending in Las Cruces,” he said. “NMSU receives much of its funding from federal research grants, which will be adversely affected. Cuts in military spending would adversely affect White Sands and Fort Bliss.

“Medicare is subject to sequestering, which will adversely affect local doctors, nurses and other health providers,” Erickson added. “Public schools that receive funding from the department of education could be adversely affected.”

Adkisson said he believes many people do not realize the extent to which government spending affects Las Cruces and the rest of New Mexico.

“I think most of us underestimate our connection to this issue,” he said. “The government, at all levels, is an important part of our economy. When the government makes payments, someone receives the payments, perhaps directly as a wage or benefit check or indirectly as a job working for private companies who do business with the government or as an educational subsidy for a child.”

Read the Las Cruces Sun-News article

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