Fiscal cliff's biggest impact could be on defense

The fiscal cliff could hurt federal spending on defense in Oklahoma, though state tax revenue would grow, according to a report from the Pew Center on the States.
by Chris Casteel Modified: November 15, 2012 at 8:25 pm •  Published: November 16, 2012
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Federal spending on purchases, salaries and wages makes up 5.5 percent of Oklahoma's gross domestic product, according to a new report measuring the potential impact of looming spending cuts. But the biggest impact on the state could be on federal defense spending.

The report released Thursday by the Pew Center on the States is the latest to warn of the impact on states if Congress and President Barack Obama fail to reach an agreement on the impending tax hikes and spending cuts known as the “fiscal cliff.”

Obama and Congress are expected to negotiate over the next few weeks to prevent the tax hikes from hitting most people. The $1.2 trillion in cuts scheduled to begin in January and spread out over ten years may be retained but distributed differently. As now planned, they would hit defense the hardest, but most federal agencies would be affected.

A study released in July by the Aerospace Industries Association estimated that Oklahoma could lose 8,000 defense-related jobs and a total of 16,000 jobs because of the way the cuts are structured.

Since the tax codes in most states are linked to the federal tax code, higher federal taxes would mean higher state taxes in some states, the report shows.

According to the Pew report, Oklahoma would gain revenue for its state budget if the federal tax hikes go into effect as scheduled because of how the two tax codes are related.

The Pew study shows 4.3 percent of Oklahoma's gross domestic product in 2010 was related to federal military spending. The state's gross domestic product in 2010 was $147 billion, according to the U.S. Bureau of Economic Analysis.


by Chris Casteel
Washington Bureau
Chris Casteel began working for The Oklahoman's Norman bureau in 1982 while a student at the University of Oklahoma. After covering the police beat, federal courts and the state Legislature in Oklahoma City, he moved to Washington in 1990, where...
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