Economic forecast calls Prop 30 two-edged sword

December 5, 2012 12:00:00 AM PST
Californians are now getting an idea about the possible long-term impact the tax increases voters approved in Proposition 30 could have on the state's economy. The higher taxes are not expected to a be a major hit to California's economy, but for jobseekers, it's difficult to hear about a possible slowdown in hiring.

California Gov. Jerry Brown successfully got voters to approve Prop 30 last month, a temporary income tax increase on high earners and a boost to the statewide sales tax to save public schools, but a 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 a long time. Anytime that you have higher taxes, it changes behavior but it also dampens an economic recovery," said Republican Sen. Bob Huff of Diamond Bar. 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 to around 8.4 percent in 2014.

Economist and schools finance consultant Gerry Shelton thinks, "It's an oversimplification." He says the report doesn't take into account what would have happened if voters had rejected Prop 30 -- $6 billion dollars in cuts mostly to public education. He thinks Californians wanted 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. And, that's exactly what the voters didn't want to see," he told ABC7 News.

Still, for jobseekers 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. I don't know how people survive on it. It's tough. I don't know how they do it," he said.

The UCLA Anderson Forecast points out though that California remains on track for economic growth and more jobs, indicating that the state has turned a corner.