Economist says San Diego would benefit by sequestration delay relating to fiscal cliff

SAN DIEGO - A possible delay in automatic federal spending cuts until at least March would be good news for San Diego's economy, the president of the National University System Institute for Policy Research said today, Dec. 31.

President Barack Obama announced today an agreement was in sight, but not finalized, to end the nation's rush toward the fiscal cliff.

W. Erik Bruvold of the Institute for Policy Research told City News Service, "The most significant thing for San Diego is it sounds like part of the deal is that sequestration will be put off for at least two months,''

Sequestration is a "poison pill" strategy implemented last year to end a fight over raising the nation's debt limit. It calls for billions of dollars of automatic cuts beginning Wednesday, Jan. 2, if U.S. political leaders fail to reach agreement to reduce the nation's deficit spending.

San Diego's political and business leaders have criticized the approaching automatic cuts as being harmful to San Diego's economy because of their impact on the defense budget.

The region is highly dependent on the Pentagon's largesse, which makes up 14 percent of San Diego's gross domestic product, according to Bruvold's institute.

Indirectly, defense spending is involved in one of every four dollars created by the region's economy, the institute reported.

Sequestration would also result in higher taxes for individuals and businesses and reduced federal support for other areas of the economy, including health care research by San Diego's extensive biotech industry, community health clinics and Head Start programs.

Bruvold said if agreements are reached now on tax rates, and sequestration is put off for a couple of months, the focus of negotiations between the parties will turn to the "politically challenging'' topic of spending cuts.

"In 2013, there will be a lot of conflict and discussion over long-term deficit reduction,'' Bruvold said. He said the "real money'' for reducing U.S. debt is in entitlements, like Social Security and Medicare, which aren't part of sequestration.

The president and leaders of the House and Senate could go right back in crisis mode when a new sequestration date approaches, he said.

The proposed agreement being worked on by Democrat and Republican leaders of the House and Senate, along with the president, would raise taxes on individual annual income of over $400,000 and families that earn more than

$450,000 a year.

The sticky issue of the estate tax has also reportedly been resolved, with a 40 percent rate levied after a $5 million exemption.