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UCLA Anderson Forecast: Prop. 30 tax hike will slow Calif. growth

December 5, 2012 12:00:00 AM PST
Economists are predicting slight growth for California's economy in the coming years, according to the latest UCLA Anderson Forecast.

Economists expect the state's payroll to grow 1.4 percent next year and real personal income to jump 3.1 percent by 2014 as more jobs are being created and more people are finding work.

The UCLA Anderson School of Management forecasts California's unemployment rate to dip to 8.4 percent by 2014, a rate above the national average.

Forecasters also lowered growth numbers for California since voters approved Proposition 30 last month. The proposition boosts the income and sales tax hikes to fund education.

Economists say Proposition 30 doesn't address how to fund the state government in the long run, which could make things worse or result in slowng California's growth.

Governor Brown will be putting together the next state budget proposal for release in January, a budget that will contain higher taxes. The higher taxes are not expected to be a major hit to California's economy. But if you're looking for a job, the Anderson Forcast's prediction of a slowdown in hiring is not good news.

Governor Brown successfully got voters last month to approve Proposition 30, a temporary income tax increase on high earners and a boost to the statewide sales tax to save public schools.

But the new UCLA Anderson Forecast calls it a "double-edged sword" because that will also have a slight drag on the economy, slowing California's growth.

"Republicans have been saying that for some time," said Senate Minority Leader Bob Huff (R-Diamond Bar). "Anytime that you have higher taxes, it changes behavior, but it also dampens an economic recovery."

The Anderson Forecast estimates payroll growth to hover between 1 and 2 percent in each of the next two years. It predicts California's unemployment rate will average 10.5 percent by the end of this year, then improve to an average of 9.7 percent next year, with the jobless rate around 8.4 percent in 2014.

"I think it's an oversimplification," said Gerry Shelton, part of the Capitol Advisors Group, is an economist who's also a schools finance consultant. He says the report doesn't take into account what would have happened if voters had rejected had Prop. 30: $6 billion in cuts, mostly to public education.

Shelton thinks Californians want to trade short-term economic growth for an investment in kids.

"We would have been looking at shortening the school day further, more kids out on the streets, higher levels of dropouts and things like that," said Shelton. "And that's exactly what the voters didn't want to see."

Still, for job-seekers like Tim Crumley, to see any slowdown in hiring, even if it's for a good reason like saving schools, is frustrating.

"I looked for about a year and a half, and everything is $8 an hour," said Crumley. "I don't know how people survive on it. It's tough. I don't know how they live."

Despite the drag the higher taxes are expected to create, the UCLA Anderson Forecast points out California remains on track for economic growth and more jobs, indicating the state has turned the corner.


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