Congress may have pulled the nation back from a fiscal cliff this week, but the budget deal could still slow California’s economic recovery in the short term, according to an economist who specializes in forecasting the state’s future.
Speaking on KQED’s Forum on Wednesday, Jerry Nickelsburg, an adjunct professor at UCLA's Anderson School of Management, said that even in the best-case scenario we can expect the state’s economic growth to slow down by one to one-and-half percentage points because of increased taxes and spending reductions.
The deal averted massive spending cuts and tax increases that were set to start on Monday. Other economists had predicted that these could push the nation into a second recession.
The arrangement cooked up in the Senate and approved by the House of Representatives on Tuesday limited the federal income tax increases to individuals earning more than $400,000 a year, and couples earning more than $450,000.
But it allowed a 2-percent payroll tax cut to expire, and that will affect most working people. For example, individuals earning $50,000 a year will have to pay $1,000 more per year in the form of a Social Security tax, David Wessel, an economics editor for The Wall Street Journal said on Forum.