Silicon Valley Mercury News – December 5, 2012
Proposition 30, the tax-raising measure voters approved by a comfortable margin in last month’s election, will slow economic growth in California but won’t derail the fledgling recovery, a study released Wednesday said.
“There won’t be a major impact on the California economy, but there will be some effect,” said Jerry Nickelsburg, senior economist with the UCLA Anderson Forecast, which issued the report as part of its quarterly survey of the statewide and national economies.
The measure, approved by a 54 percent-to-46 percent margin by California voters, retroactively raised income taxes on residents who make $250,000 or more a year. And starting Jan. 1, Prop. 30, designed to ward off draconian cutbacks in state education spending, will impose higher sales taxes on everyone.
Because of Prop. 30, California in the coming year will add payroll jobs more slowly, the statewide jobless rate will improve less quickly, and personal income won’t be as robust as originally predicted, according to the forecast.
But despite the uncertainties, California remains on track for economic growth and more jobs. While lowering its forecast slightly for 2013, the Anderson Forecast revised its forecast upward for 2014, Nickelsburg said.
“The state has turned the corner,” said Edward Leamer, director of the forecast. “We have the troubled housing sector starting to contribute in a positive way. California will continue to grow but not as much as it used to grow.”
During the year that ended in October, California payroll job totals increased by 2.1 percent, state labor officials reported.
“The question is not whether we will get another recession, the question is what kind of growth we will get,” Leamer said. “Growth of 2 percent is not good enough.”
California’s payroll job totals are expected to grow 1.4 percent during 2013 but should increase by 2.2 percent in 2014, the forecasters said.
The jobless rate in California should average 10.5 percent by the end of this year, improve to an average 9.7 percent rate in 2013 and drop to 8.4 percent in 2014, the forecast predicted.
“The passage of Prop. 30, while setting the stage for more revenue to replenish the state’s depleted coffers, also poses some risks by making the state government funding stream more volatile than it was before,” Nickelsburg said.
That’s because California will depend to a greater degree on upper income residents to finance government.
“With that volatility, economic downturns will become even more of a problem than before, Nickelsburg said.
