5 Ways the Fiscal Cliff Affects San Diego Construction and Real Estate, from Pacific Restoration, a San Diego Construction Company

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With the upcoming deadline for fiscal cliff negotiations, questions loom for the slow-recovering San Diego construction and property market. Here are the facts about fiscal cliff negotiations and its possible effects.

December 20, 2012: As President Obama and House Speaker John Boehner meet today to discuss the approaching fiscal cliff and the January 1 deadline for negotiations, many wonder what the fiscal cliff actually means for them. Talks of increased taxes, higher unemployment, less business spending and investment, debt ceiling uncertainty, and expiring unemployment deadlines have flooded the news, creating fear and uncertainty for many industries, including residential and commercial construction in San Diego. While bipartisan efforts appear to be absent in negotiations, each side has its plan for avoiding the looming cliff. Here are some highlights:

The Obama Plan would allow the Bush tax cuts to expire for individuals who make more than $200K and for joint filers who ear more than $250K, resulting in an increase to the two top tax brackets. Obama also calls for an end to the wars in Iraq and Afghanistan, which would yield a $1 trillion savings in the current deficit. Additionally, to boost domestic economic growth, Obama plans for $200 million in new spending, which could include extensions in long-term unemployment benefits and payroll tax cuts. It would also include a fund for infrastructure spending and extending tax deductions for business for equipment depreciation.

The Republican plan; however, extends that Bush tax cuts for one year and calls for raising tax revenue in other channels by ending tax breaks, although the specific of how this will be done are not detailed. There are no talks of additional spending or spending to boost economic growth. Both sides have called the other’s plan unfeasible, and if the country reaches the fiscal cliff, the country will slide into a “significant recession”.

Here is how the fiscal cliff might affect San Diego construction:

1. An increase in business taxes could limit the amount of employed construction workers or even cause a decrease in the number currently employed, and without sufficient manpower, would slow or halt construction in San Diego.
2. Alternatively, it is also possible that infrastructure spending by the federal government could increase San Diego construction if that spending is put towards improvements in government buildings and roadways.
3. Families that have budgeted for repairs or home improvements may hold off on making these investments for fear of less income due to tax hikes.
4. Federal spending cuts may withhold money currently allotted to local construction companies who are making improvements on federal projects, and with less government contracts, construction companies may be forced to lay off workers.
5. Some families or business owners interested in upgrading to a larger home or office but fearful of the fiscal cliff effects, might remain conservative and instead opt for remodeling their exiting residence or commercial building.

Regardless of the outcome of unsuccessful talks between Democrats and Republicans thus far, the changes in spending and taxes will surely affect construction and real estate in an already unstable southern California market, but optimism remains that construction and real estate will stay resilient.

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Andrew O'Connor
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