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State Controller says finance, tax reforms necessary

While the economic forecast for 2013 looks more promising than it has since he took office in 2007, California is by no means out of the woods yet, according to California State Controller John Chiang.

Chiang, who is now in his second term, used his office as a microcosm of the state’s economy to demonstrate how it has improved markedly, but still has a measurable distance to go. Pre-recession personnel numbers in the controller’s office totaled 1,300, then dropped to 1,100 at the height of the recession and have now rebounded to 1,200 people.

Speaking at the Fermanian Business & Economic Institute at PLNU’s Economic Outlook 2013 on Thursday, Chiang said his priorities for the coming years are to reform the state’s financing and tax structures, implement a pilot health care program and pay off California’s debt, which is a mammoth task in and of itself.

Part of the problem with this last goal is that California, unlike every other state in the country, doesn’t make debt service its top priority, choosing to place education first and debt reduction second. In fact, debt ranks fourth on the list of the state’s expenditures, after 51 to 53 percent of the budget is spent on education, 28 to 29 percent on health care and social services and 9 to 10 percent on prisons, leaving a mere 7.8 percent for debt.

“We’re far from being out of the woods, and frankly, as I pointed out, we need to reform our finance structure, and our tax structure,” Chiang said. “California’s economy is growing, and again growing faster than the rest of the nation, but we have a lot of debt that is not fully understood by the public because our state’s finances are, frankly, complicated.”

Creating stability in tax expectations at the federal and state levels would go a long way toward resolving this issue in Chiang’s mind.

“Identify a number relative to our GDP,” Chiang said. “So if you look at the Clinton days or President Bush days, tax collections would be anywhere from 17 percent to 23 percent of the nation’s GDP.”

“So pick a number, 21 percent, and be consistent. And so if you have good years, and this is what government does not do well, when you have good years use those excessive tax collections to pay down the debt. “

With health care inflation increasing from an expected $48 billion over a 30-year period in 2007 to $62.2 billion in the same timeframe this year, Chiang said he also hopes to expand a health care pilot program that was successful in its trial run in his office. In a market where 60 percent participation is average, Chiang said 90 percent of 1,200 employees chose to register for the program, which received positive feedback. Its approach favors preventive rather than reactive medicine, and Chiang said saves thousands, if not hundreds of thousands of dollars per person.

“As we go forward, as we pointed out California’s economy is recovering, we’re on a slight uptick, but things we have to work on are financing, the finance structure of California, and tax reform,” Chiang said.

* Related video: Dr. Lynn Reaser's 2013 economic forecast

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