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Economic Forecasts

13 Bold Forecasts for 2013

As the new year rolls in, The Kiplinger Letters give you our forecasts on key issues to build into your decisionmaking process.

1. The MVP for the economy in 2013? Housing. Look for a return to pre-boom numbers by year-end in both starts and sales as the housing recovery speeds up.

But it'll be a lackluster period for other economic measures: business investment, government spending, exports and consumer spending, other than for homes and autos. Expect GDP growth a tick above the 2% seen in 2012. But that won't make much of a dent in unemployment.

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Growth will be even slower for the European Union, as the recession on the continent lingers into summer before picking up somewhat in the second half of 2013. Through December, the 27 economies will grow about 0.5%.

2. Your taxes are going up next year, even if a dive off the fiscal cliff is avoided, as it appears will be the case, and even if tax breaks are extended for most folks, as expected. The reason: Congress won't extend the payroll tax holiday, which cut a worker's share of the Social Security tax by two points. Cost to a typical family: About $2,000. (Use Kiplinger.com's calculator to see how much the payroll tax hike will cost you.)

Some of you will also pay more to state and local governments next year. Not so much on income, because tax-resistant Republicans control most state legislatures and governors’ mansions. But higher "sin taxes," property taxes and fees are coming.

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3. U.S. oil production will hit a 20-year high of more than 7 million barrels a day. America will remain the number three producer, but is closing in on Saudi Arabia (just under 10 million barrels) and first-place Russia (a bit under 11 million barrels). Prices will stay at high levels because of intense pressure from the Organization of the Petroleum Exporting Countries to generate enough revenue to keep restive populations firmly under control. Expect oil to average $100 to $105 a barrel and gasoline, about $3.70 a gallon.

4. A ban on assault weapons and other guns? It's not in the cards in 2013. The raw emotions of the Connecticut elementary school attack and funerals for 20 first-graders will fade, as they did in the months after earlier mass killings that led to calls for gun control.

President Obama, who won't face voters again, will try to force the issue. But he'll have to settle for far less than taking some guns off the market. Changes in the waiting period to buy guns and in rules for private sales are possible. Passing legislation to limit the number of bullets a clip can hold is less certain. The fight over guns is as much cultural and geographic as it is political: urban vs. rural; coastal states vs. Middle America; liberal vs. conservative. Republicans will oppose any serious controls, but so will a number of Democrats in small and midsize states who'll face tough races and conservative voters in 2014.

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"The politics here are tough, as they're always tough on the gun control issue. Groups are entrenched, well funded and have access. And even if you don't believe the NRA [National Rifle Association] or other groups are as powerful as many think, they remain a power among certain segments of Congress and the broader population and are likely to influence this process," says John Hudak, a government affairs scholar at the Brookings Institution.

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5. Congress is preparing a welcome mat of sorts for illegal immigrants. Backers include Republicans looking to build bridges to the growing number of Hispanic voters, who overwhelmingly supported the president's 2012 campaign. The proposal, opposed by conservatives, offers a path to citizenship for many. Also coming on the immigration reform front: tougher border security and more visas for much-needed temporary workers who fill jobs that many Americans won't do.

"The failure to deal realistically with our nation's large and long-settled undocumented population is economically self-defeating in its own right," says Marshall Fitz, director of immigration policy at the Center for American Progress.

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6. Obama's health care law will roll out on schedule. Expect a bumpy ride, however, as exchanges rush to enroll folks before coverage begins on Jan. 1, 2014. Enrollment will start on Oct. 1, so employers have only a short time to prepare. The deadline for notifying workers about the exchanges, for instance, is March 1.

7. Need a personal assistant? Next-generation smart phones will do the job. Sensors and apps will track everything from your location to your blood pressure and will even map out alternate routes if your stress level starts rising in traffic jams. Also on the way: foldable screens that can provide a larger display area.

8. With new leaders, China is edging toward a consumer-oriented economy. But a slow transition means U.S. companies won't benefit for many years. Signals from incoming President Xi Jinping and Premier Li Keqiang are encouraging, though, especially their goals of making China less reliant on exports and subsidies.

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9. Is 2013 the year Israel launches air strikes against Iran? It's a good bet. Iran shows little interest in cooperating with calls to halt work at nuclear sites that are closing in on the capability to fashion nuclear weapons. Uncle Sam, though urging more talks, is poised to send Israel more bunker-busting bombs. Prime Minister Benjamin Netanyahu is willing to fight alone, but won't have to. At the very least, he'll get radar and logistical help from the Obama administration.

"Israel is prepared to act alone in this mission," says a national security source close to Netanyahu, "but don't be surprised if you see American fighter-bombers flying alongside our planes."

10. It hasn't hit him yet, but President Bashar al-Assad is done in Syria. By the end of the year, he'll be in exile -- if any place will take him -- or dead. Even the Russians are distancing themselves as he continues to fight his own people.

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11. A divided Supreme Court will come out in favor of gay marriage. But justices are likely to stop short of calling such marriages constitutional. Instead, they'll strike down a law defining marriage as between a man and a woman. They may also overturn a California law that bans same-sex marriages, in a 5-4 vote. But they're not likely to use either decision to establish a nationwide precedent. Justice Anthony Kennedy will be key, choosing gay rights over states' rights.

12. It shouldn't come as a surprise if House Speaker John Boehner (R-OH) is ousted. His party is split between tea party conservatives and mainstreamers, and he's losing control. Boehner's call for tax increases, though defeated, earned him a new supply of enemies. Majority Leader Eric Cantor (R-VA) is his likely successor, but he won't run without outside backing.

13. The 2016 presidential picture will start coming into focus by year's end. Hillary Clinton, after resigning as secretary of state, will move back into the spotlight late in 2013, hoping to clear the field and emerge as the top choice for Democrats. And New Jersey Governor Chris Christie will easily win reelection, making him the early favorite among establishment GOPers. Conservatives will take longer to unite behind someone.

"Hillary-Jeb [Bush] is the early dream race, especially for the political pundit class, but Chris Christie will come out of this year's gubernatorial election as the beast to beat…. Whether he makes it through the tea party [Republican] primary gauntlet is the real question," says a longtime Obama political adviser.

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