Fiscal Cliff Casts Shadow Over San Diego Economy
MAUREEN CAVANAUGH: This is KPBS Midday Edition. A San Diego lawmaker talks today on fiscal cliff. We hear from Rep. Susan Davis, who joins us before she heads back to Washington DC where negotiations continue on a deal to avoid the fiscal cliff. We will hear what kinds of offers are on the table and what the impacts might be on San Diego. Algae is being used as a biofuel. Now UC San Diego researchers are using the tiny organisms to produce medicines to fight disease. And then an encore broadcast of the conversation with the legend Patti Smith. I am Maureen Cavanaugh. KPBS Midday Edition is next. First the news. A San Diego Congresswoman talks about the deals them deadlines surrounding the fiscal cliff. UCSD scientists announced a breakthrough in algae use in medicine. This is KPBS Midday Edition. Here are the San Diego stories we're following in the KPBS newsroom this Mondays December 10. US National Transportation Safety Board is assisting the investigation of the Learjet crash that killed Mexican TV star Jenni Rivera. The popular singer was among seven people who died in the crash in northern Mexico last night. Property taxes are due today for San Diego County landowners. Property treasury secretary Dan McAllister says more than 5000 property tax bills remain unpaid as of last week and Lindbergh Field's first duty-free shop opens today he will allow passengers heading to Canada Japan Mexico and the UK to buy many items tax-free on their way out of San Diego. Listen for the news today right here on KPBS. The top story on Midday Edition, the phrase fiscal cliff is being heard this season almost as much as happy holidays. Democrats and Republicans in Washington are faced with a deadline of their own making. The books – cards and images to/about 10% for many government programs gangs and at the end of the year unless lawmakers can agree on a deal to stop it. The report issued earlier this year by the policy Institute of national University from San Diego would take a hint from falling off the fiscal close. Joining me to discuss the economic impact are my guests, Congresswoman Susan Davis, Democrat representing San Diego's 53rd District. And Congresswoman Davis, thank you so much for coming in. SUSAN DAVIS: Well it's always good to be with you, thank you. MAUREEN CAVANAUGH: Erik Bruvold is here. He is president of national University system for policy resource there, welcome ERIK BRUVOLD: Thank you Maureen, good to be here. MAUREEN CAVANAUGH: We called all three members of San Diego's Republican delegation but all three were unavailable to join the conversation. So let me start with you, representative Davis, how close would you say lawmakers are to making a deal to avoid the fiscal cliff? SUSAN DAVIS: Intelligent networking obviously there are many moving parts to this. The news today suggested that the president and speaker worked got together over the weekend and when you talk to people it sounds like there are ways that you could assume that we are really not that far apart, and there are other days when it sounds that it's far more difficult. There are many things that we are looking at right now and of course it's really the balance I think that has to be made I think over the next 10 years we have to come to a series of both revenue increases and spending cuts that get us somewhere I guess it's been suggested about $3 trillion and that if we do that in a fiscally sustainable and balanced way, spending cuts and revenues, when I'm certainly interested in, very concerned about is that the middle class is not enter this because we know that for the economy to stay vibrant and churn along the way we believe it should we have to be careful and not put a great strain on middle class families in this country. MAUREEN CAVANAUGH: Let me ask you then specifically there is talk of some sort of compromise on this that would eliminate or change the mortgage deduction on federal taxes. Would you support something like that in order to avoid the sequestration at the end of the Bush tax cuts? SUSAN DAVIS: What I believe and I think a lot of people feel is that everything has to be on the table. There are ways of looking at tax reform in this country and I think that's what this opportunity in many ways presents for us and it can be a very good thing that we take a look at how we managed is because I believe that we have to look at some tax increases for the highest income, the highest 2% income in this country. But that's not all. It's not all this sort all that. It really is a combination here and when we hear about changes in tax reform the first thing people think about is the mortgage tax deduction and the margins. The families are able to take off of their income taxes. That is important. It may be a portion of that. Nothing that would impact people in a way that is so great a maybe for those that have the highest income. The same is true when we look at health care and industry the people do not have to deduct or the savings that they have in healthcare from their income. There are many parts to this as I said and that's why we keep saying put it on the table, let's look what we can see we know we have to talk about revenues and obviously have to talk about spending cuts and I think we are ready to do that. MAUREEN CAVANAUGH: Let me go to you, Erik, before go to the overall research that the research paper has done for San Diego in the fiscal cliff the mention of the mortgage deduction strikes fear into the heart of a lot of people who own homes without significantly hurt the middle class do you think ERIK BRUVOLD: In San Diego in California, Coast, yeah. An immediate change to mortgage interest deduction is going to be problematic in our state because of high housing costs. So you have San Diegans who have scraped and made their way into housing boom basic vacant amount of mortgage and using the deduction would be harmful. There are other places in the country where housing prices are 150, 175,000 where mortgages not a big chunk of the deductions they take. I think economists universally or near universally agree that the mortgage interest deduction doesn't make a lot of sense. It means that this Americans over consumer and housing and buy bigger housing but whether we do it in one fell swoop or whether we gradually ease our way into it are the kinds of choices that are on the table about the deduction. MAUREEN CAVANAUGH: . You released a research paper this summer and the possible effects that the end of the Bush tax cuts and the end of the sequestration cuts would have on San Diego what were the overall findings? ERIK BRUVOLD: So we found a couple things I will give for the dollar number in general get into jobs which people understand. So if we have everything go off the cliff and we entire form last for an entire calendar year 2013 we are looking for 24.32 $5.9 million decreased economic activity in the region. And we translate that into jobs, that is about 40,000 jobs that would come out of the region's economy and to put that in perspective that is about everything that we've recovered since the bottom of the recession and that is for two reasons. One we stop spending and in San Diego that's particularly big hit on the defense industry and that we take money out of through the increase of taxes from out of household budgets and wellness to the expiration of the Bush era tax cuts hit high income San Diego's we've got a break chunk of sending things that make somewhere between about 80,000 me know, decidedly middle-class up to about 170,000 and they would have a significant increase in their taxes which have a demonstrable impact on household spending patterns. MAUREEN CAVANAUGH: Rep. Davis I know that you are on the armed services committee, very involved in, and committed to our defense and I'm wondering what do you foresee if indeed we did have to sustain a 10% reduction to the defense industry here in San Diego? SUSAN DAVIS: It is a great concern I think to all of us here in San Diego because the defense industries would certainly be impacted but I also think we have to be careful about how we proceed in our thinking when it comes to personnel cuts within the military as well. As the ranking chair of the committee I'm very concerned that we continue to provide the kinds of benefits that we know are so important to our military. There will be some decision-making down the road as it relates to all those things, but right now I am of the opinion that we are not likely to see the sequestration, which is that cuts across the board that we can control. The budget control act itself gave the Defense Department, gave the Pentagon time to look at the needs that they have. The interesting thing is that even the armed services committee put back some of the programs that they actually thought we didn't need any longer. So Congress always has a role to play in this. Right now as we think about the sequestration it is just harmful in the way that it's done and I have great confidence that we can look at contracting and procurement and all the issues that can be done smartly. So that people don't have to cut in the middle of their contract. That would be impossible anyway and the reality is that that's probably not going to happen because that would trigger some lawsuits and a whole host of other things that would happen. This is difficult at this time. I'm very hopeful that we can find the balance of revenues and spending cuts and we won't have to deal with that but we will of course have to face the fact that there may be some cuts that we have to deal with and I think people in San Diego here recognize that there are some reasonable things that get me down and at the same time there are some things that are pretty sacrosanct in terms of really making certain that we protected in the future. MAUREEN CAVANAUGH: One of the things that Pres. Obama campaigned on and he's talking about and standing firm on it seems, Erik, is the idea of eliminating the Bush era tax cuts for the wealthiest 2% of the US, did you do any calculations on what the impact of just that cut would be on San Diego? ERIK BRUVOLD: So we took a look and you know the IRS unfortunately does not mention that the numbers directly with where the president is in terms of the income cuts, but what we know is that there are about 60,000 households that pay taxes in San Diego County that makeover $175,000. So to the extent that the tax cut is abundant, those households would be looking at tax increases and when we did so to the financial calculations on that, and taking the money out of the county about somewhere around 9000 job impact on not counting negatively for taking out those taxes out of the economy. MAUREEN CAVANAUGH: If indeed all those people are going to be paying higher taxes are they hiring anybody ERIK BRUVOLD: It is really that household spending, so they go out and buy goods at the mall, they shop for new cars. They spend the money and taking money out of the economy means that they spent less of a. Now the one thing which we do know about higher income households is that when faced with tax increases they don't necessarily lower their consumption is not just a lower their savings. So actually we kind of put the tax cut I think that's our congressmen Davis is right if we put the tax increase on the middle class it would have a greater economic impact because middle-class household tend to spend a higher percentage of their incomes than upper income households. MAUREEN CAVANAUGH: As I said Susan Davis this has been president Obama's position all along through the campaign etc. the American people supported this plan by reelecting him. Is that swing any Republican votes in Washington? SUSAN DAVIS: I actually think it is pretty there's been a different level of discussion and so does anticipation. I think two years ago we saw people just digging in and not being willing to discuss these issues. It is, the issue between whether you are dealing with the tax rates that people paid, or the tax deductions that people have and I've actually heard and I think it's probably true we may end up with sort of a combination of those things, but in a way that does not, I hope, impact the people who really have been hurt by the economy or have the ability to continue to sustain their own family income and growth and send kids to college and do other things that they believe is part of the American dream that they are living it is important that we continue to sustain that for the groups and it may be in the and we are looking at both of those. Perhaps some deductions and at the same time that rates are going to move somewhere. I think if we could see some indication from our colleagues on the other side of the aisle that rates are going to be part of this mix, that that is something that would be convincing to move on and deal some of the other issues. MAUREEN CAVANAUGH: I want to get both of your takes on this, Treasury Secretary Timothy Geitner said recently the White House is prepared to let all the tax cuts and, sequestration kick in, in other words falling of the fiscal cliff and start fresh negotiations on debt deficit reductions early next year. Susan Davis what is your take on that? You think that is an idea? SUSAN DAVIS: I don't think we should go over the fiscal cliff but this is what I think could happen. We could come to some agreement about a framework of what direction we are going in, and then in the next month two months, January and February because we really have a lot of issues that have to be dealt with. The payroll tax holiday, what we call the doc fix as well. It affects everybody here in San Diego. So if we could define where we are going and then in the next two months really make some of these tough decisions in difficult areas we are looking at I think we need to show that we can bring in, you know, somewhere in the neighborhood of about $100 billion to keep us from going to sequestration. And that figure actually is kind of half if you think of defense and discretionary, it is half because we cannot make all those cuts in 2013. I believe we can get there and the other pieces that are so critical to the economy we can look at in a far more thoughtfully and I'm hoping that that is the kind of agreement that perhaps the president and the speaker will come forth with. MAUREEN CAVANAUGH: Erik, would you think of the idea of letting it happen in dealing with it with the next months of next year ERIK BRUVOLD: I hope people will shorten the market, I think what you found when Congress was unable or went up to the brink of the calamity of not extending the debt ceiling limit is that financial markets are very worried that Washington is in Washington is in gridlock and I think there have been positive things in terms of the rhetoric coming out of the last two weeks I think we've seen a lot of posturing but also willingness to think about compromises. I think if we went to the end of December and we didn't have as Congresswoman Davis is a framework in place or some sort of agreement that gave the signal that people were willing to work together I think you would see a pretty calamitous decrease in equity markets, and the bond market and I think the challenge would be in that situation trying to find resolution in January and February could be very very difficult. I think we need to see a framework deal and I think that's the right way to think about it. A framework deal done in December and some of the details hashed out in the first quarter of 2013. MAUREEN CAVANAUGH: I'm almost out of time but I can't leave this Congresswoman Davis about talking about something that was really pretty important to a lot of people here in San Diego. One recent proposal by the Republicans has included raising the age for Medicare benefits from 65 to 67 to help lower the deficit. Even some Democrats have said that something that might have to be considered to save Medicare. Do you think it would be, you would support that is part of the deal to actually close the fiscal, to make sure that we did go over the fiscal cliff, that we did not have to see sequestration kick in? SUSAN DAVIS: I think there are a lot of cuts we can see in Medicare and looking at the entire Medicare system that don't necessarily have to change the age I think what I said earlier it's not all or nothing we don't necessarily go from 65 to 67 whatever is done what have to be done in a long-term phase in weight, but it might be such that it doesn't harm the people who today are counting on the changes the other thing that is really critical here is that people between the ages of 65 and 67 still need to be getting some healthcare and the fact that as they become more vulnerable and more need centered in terms of medical care, that happens as you get older after 65 they may not have been as much today because people are living longer and people and 67 are still very vital, but they would go into, they would stay in what is a general healthcare system and how a general healthcare system as we know is really not as efficient as the Medicare system. MAUREEN CAVANAUGH: So that would not be part of a deal that you would support SUSAN DAVIS: I think we would certainly need to know the details combined with advertising just going from 65 to 67 I think there are other ways of addressing the problem. MAUREEN CAVANAUGH: What is your take, and you think that we are going to see a deal to resolve the fiscal cliff issue by the end of the year, maybe by the end of the week? SUSAN DAVIS: I think and I'm hopeful not by the end of this week necessarily but in the next two weeks I am hopeful that we will have a framework which relieves the anxiety that people feel about whether or not Congress is up to the task. That we are and at the same time we will be able to work very very hard and are justly in the next two months to resolve the major details around this. MAUREEN CAVANAUGH: And Erik, do you agree? ERIK BRUVOLD: It's the time of season for optimism and I'm giving it probably a 6040 chance I think we've had some real positive things come out of Washington in the last two weeks that suggest both sides are willing to think about ways to get this crisis resolved. MAUREEN CAVANAUGH: Okay I have to end it there. Congresswoman Susan Davis thank you, Eric Bruvold at the National University system for policy Institute thank you both very much. ERIK BRUVOLD: Thank you.
San Diego could end up with wide reaching impacts if federal lawmakers can't find a compromise solution to avoid the fast approaching fiscal cliff. Federal lawmakers are working to avoided automatic spending cuts and tax hikes that take effect in the new year, but there is no deal in sight.
San Diego residents probably won't notice much change right away if there's no deal January 1st, but the region could see huge impacts by spring, according to Tony Cherin, a professor emeritus at San Diego State University
The tax hikes would be most noticeable if people have investment income. He said spending cuts will carve into the region's defense industry and probably hurt tourism.
"If there's an impact on let's say some of the entitlement programs, you might see impacts on biotech, things like that. But I would look first for the impact on the military," said Cherin.
Cherin stands with some economists who argue that that keeping spending flowing is more important that trimming deficits right now, because interrupting the economic recovery could do more harm than good for the nation's finances.