Will higher taxes on the rich derail California’s economic comeback?
The increases come as California’s economy continues a remarkable turnaround. A year ago, the state was a mess, with double-digit unemployment, a bottoming-out housing market and scary budget deficits. Now, hiring is up faster than the national average, and the housing market is regaining strength. Even the state budget is back in the black.
What happens to the economy here over the next year will be a case study for policymakers in Washington, who are paralyzed by similar questions of taxation and growth. The early indications, in California, point toward an outcome you might not expect.
The tax increases approved in November are a big reason the state isn’t staring down another huge budget shortfall or the prospect of issuing IOUs to fill it. They include bumping up the sales tax slightly and raising the top income tax rate to 13.3 percent, which is four percentage points higher than the District of Columbia’s and more than double the rate in Virginia or Maryland.
Yet many economists and some young executives in the state say they don’t worry about that high rate chilling growth. Other factors loom much larger for California’s business and economic health, they say, including whether the state can maintain deep pools of highly skilled talent and, in complicated but important ways, the renewed upward march of housing prices in the Bay Area and beyond…
The state’s recovery has two drivers, economists say. The innovative engines of growth along the Pacific Coast have roared back to life. Also, the state’s housing market is no longer the anchor on growth that it was for several years: Prices bottomed out in 2012 and began to rise, construction permits are up, and contractor hiring is accelerating.