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Proposition 30 Could Slow Economic Growth, according to UCLA Report

December 6, 2012

On November 6, California passed Proposition 30, a measure that, as ABC News explained, plans to temporarily increase both income taxes on high-income earners and the state sales tax in order to raise funds for California's public schools. While the passage of the proposition is good news for California's public education system, it could have unfortunate implications for the state's economy.

press release on the UCLA Anderson Forecast, which predicts the United States’ economic growth at both the state and national levels, disclosed that California's employment is expected to grow by 1.3 percent in 2013 and 2.4 percent in 2014. Real personal income growth is predicted to be 1.8 percent and 3.1 percent in the same years. UCLA Anderson expects unemployment to fall to about 9.7 percent in 2013 and 8.4 percent in 2014, compared to 7.9 percent and 7.2 percent for the national average.

According to ABC News, these rates would look better without the tax increases of Proposition 30. Senate Minority Leader Bob Huff stated, “Anytime that you have higher taxes, it changes behavior, but it always dampens an economic recovery."

Jerry Nickelsburg, author and senior economist of the forecast report, explained in the press release that Proposition 30 has been "the most important change in the Golden State since the September UCLA Anderson Forecast release." He writes that, although Prop 30 does provide assistance to public schools, it does not work towards solving long-term issues in how to fund state government. He further explained the aftermath of Proposition 30 in CBS News, stating, "State government is funded on a highly volatile income stream, namely the income of the upper income earners in California. Prop. 30 increases the dependence on those income earners for funding state government."

While the tax increases of Proposition 30 will affect economic growth in California, there are additional factors preventing a quicker recovery. According to CBS News, Nickelsburg mentioned recessions in Europe and Japan as contributing factors. Additionally, he remarked that "the U.S. consumer is really increasing their purchases of goods and services at a real slow rate."

Proposition 30 still has its proponents, however. Gerry Sheton, an economist and school finance consultant, told ABC News that the Anderson Forecast does not take into account the advantages of Proposition 30. Had the proposition not passed, California would have undergone $6 billion in cuts, primarily to public education. "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," Sheton stated.

Furthermore, although the forecast may seem discouraging, economists do expect the state of California's economy to improve, wrote ABC News. Even with higher taxes, California is still poised for economic growth and more jobs.


Compiled by Aneesha Jhingan

Sources:

"National and Statewide Outlooks Anticipate Modest Growth in GDP, Housing and Employment Next Year," uclaforecast.com, December 5, 2012

"UCLA Anderson Forecast: Prop. 30 tax hike will slow Calif. growth," abclocal.go.com, December 5, 2012, Nannette Miranda

"UCLA Forecast: Slow Job Growth, Unemployment To Linger Into 2013" losangeles.cbslocal.com, December 5, 2012

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