Fiscal Cliff could hurt East Tennessee residents

Fiscal Cliff could hurt East Tennessee residents

"Everyone who is working and earning an income will feel this," said Dr. Fox. "Everyone who is working and earning an income will feel this," said Dr. Fox.
"Money is something we have to watch on a weekly basis," King said. "Money is something we have to watch on a weekly basis," King said.

6 News Reporter

KNOXVILLE (WATE)—  Congressional lawmakers are making plans to head back to Washington in hopes a deal on the fiscal cliff can be reached before Jan. 1.    

Falling off the cliff means about $536 billion in tax increases for all Americans since various federal tax cuts and breaks will expire if congress does nothing.  

It affects nearly everyone in East Tennessee.

"Everyone who is working and earning an income will feel this," said Dr. Bill Fox, UT economist and professor.

Knoxville resident Patrick King could pay at least $2,000 more in taxes each year, if the country goes off the fiscal cliff. 

King has a wife and two children; he says every penny counts for his family.  

"My wife works part-time, I work two jobs, so it will actually make a pretty significant impact on us, right now it's pretty tight, and money is something we have to watch on a weekly basis," King said.  

King could pay more in taxes since the temporary social security payroll tax cut and Bush era tax cuts are set to expire.   

This means a family of four making between $50,000- $75,000 a year would pay $2,400 more a year on average, according to the nonpartisan Tax Policy Center.

Dr. Fox said the country could go into a recession if the fiscal cliff isn't dealt with immediately.

"This is such big reduction in demand. First of all-- because the federal government is spending less, but secondly because consumers as a result of these tax increase will spend less. We will drive the U.S. economy into a recession, I'd say within the next 3 to 4 months," Fox said.  

Federal spending cuts of 8 to 9 percent could also kick-in which could affect federal grants and research capabilities for universities, like the University of Tennessee, and it could even impact federal jobs in the area.

"There are lots of jobs that are dependent on federal payment. If we fall off the fiscal cliff, we should expect to see over several months influencing activity in Oak Ridge and throughout East Tennessee," Fox said.

Some we spoke to are willing to sacrifice paying less in taxes, advocating to put more money in the government's hand.   "It's a necessary thing to do. There's no such thing as a free lunch. We got to work for what we get," Dan Umbdenstock, a Florida resident visiting his son in Knoxville.

Dr. Fox said the direct impact of the fiscal cliff is probably more significant in some parts of the country than here in Tennessee.

"Our incomes are a bit lower than the national average, so the progressivity of the federal income tax has less impact on us on average than in the rest of the country," Fox said.

Fox added the amount of employees working in federal government and federal purchasing in Tennessee is less than the average of other states.

There are proposed budget cuts to federal spending and 10 percent in proposed cuts to defense spending. This could specifically affect Oak Ridge National Laboratory.  

The lab works on a multitude of national security projects funded by defense spending.

ORNL receives around 80 percent of its funding through the Department of Energy.

Lab Director Thom Mason says for the past few years the lab has prepared for potential cuts by reducing staff, employee benefits and making changes to employee's pension and medical plans.  

 "For the last two years we've seen storm clouds on the horizon in terms of the pressures of the federal budget. We've been doing everything within our control in order to reduce costs and really prepare for what we expect to be a tough couple of years in terms of funding," Mason said.    

Mason said there are no plans for any changes, but didn't rule out the possibility of any impacts to employment levels.  

Currently-- Oak Ridge National Lab employees 4,400 people.

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