California Braces for Fiscal Cliff Fallout

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Washington lawmakers have gotten nowhere in their negotiations to avoid the huge tax increases and budget cuts set to hit Jan. 1.

Economists predict the fiscal cliff will put the U.S. economy back into a recession.

For California, a state that's already suffering from economic problems, it could mean disaster. The Golden State boasts the largest state economy in the United States and the eighth largest economy in the world.

But its unemployment rate stands at 10.1 percent and state officials fear the federal budget stand-off could seriously hurt California's economic recovery efforts.

"Most people think the economy would be drawn into a recession and just like in any recession, that would affect the state's economy and revenues and result in billions of dollars of less tax revenue for the state," California legislative analyst Jason Sisney said.

Here's what could happen:

  • More than 200,000 people could lose their jobs.
  • The state would lose up to $4.5 billion in federal funding.
  • And the state budget could shrink by $11 billion over the next two years.

Defense contractors would be one of the hardest hit. Cuts in military spending could kill 135,000 jobs in California alone.

Across the state, activists are pressing Washington for a deal.

Jimell Moore, with the Alliance of Californians for Community Empowerment, is one of an estimated 360,000 unemployed Californians considering the prospect of losing unemployment benefits.

"The economy, if it continues to slow as much as it is now, it'll be hard for me to find a job, if I find one at all," Moore said.

Californians also face a double whammy on taxes. Workers are preparing to see an increase in income taxes if Washington goes over the cliff.

Voters approved a sales tax increase of .25 percent for 2013. Now, if lawmakers don't act, they'll get hit with higher income taxes as well.

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Heather Sells

Heather Sells

CBN News Reporter

Heather Sells enjoys reporting on a variety of issues for CBN News. Some of her recent stories have focused on religious liberties, technology, AIDS, overseas missions, domestic trafficking, and politics.  Follow Heather on Twitter @SellsHeather and "like" her at Facebook.com/HeatherSellsCBNNews.