Moving Beyond Denial on the Tax Increase
I posted an essay on Gapers Block in June, 2009 explaining why I felt that Illinois in its budgeting had been in denial about an income tax increase, and that some form of tax increase was inevitable. We had a structural deficit, because our current tax structure didn't generate enough to fund the total state budgets and pension obligations at the rate we spent; the problem had been made worse through years of avoidance via creative accounting such as fund sweeps and, in effect, using the pension funds as a credit card; and we had a huge revenue shortfall due to the recession that dramatically lowered revenues from income taxes, sales taxes, and real estate transfer taxes. Subsequently, a tax increase was passed.
The unenviable task of presiding over a tax increase to address chronic "dine and dash" fiscal policy fell into Pat Quinn's lap immediately upon taking office. Some have had a field day blasting first "Quinn's tax increase" and then "Quinn's budget cuts," but the math was the math. Without a tax increase, Gov. Quinn had two choices: continue to spend at the previous rate, on the wish and hope that new money will magically appear somewhere down the line, or begin draconian cuts. The first option, as Senate president John Cullerton said in mid-June, would have been "incredibly irresponsible." The second option, most agreed, would be devastating to service providers, especially in areas that serve the most vulnerable of our population. Hundreds gathered to protest at the Thompson Center on June 17 and thousands gathered two days later at a June 19 rally.
The reality is this: Even the Civic Federation, which "rejected" the governor's tax-increase proposal, conceded that an income tax increase (from 3% to 4% in the individual rate, and adding 1.6% to the corporate rate), was necessary, even if all the cuts they argued for were made. Quinn initially proposed a 1.5% increase, from 3% to 4.5%. What eventually passed was essentially the Illinois Senate's proposed a 2% increase, i.e., raising the rate to 5%, which is what the more Keynesian and state-employee-oriented groups, such as CTBA, propose.
Critics of the tax increase warn that it won't be temporary but will be made permanent. They are correct; had I been in office, I never would have promised that. So be forewarned. The problem won't be a flip-flop in the future, it's that it wasn't straightforward in the past. Illinois still faces problems.
The reality is this: Even the Civic Federation, which "rejected" the governor's tax-increase proposal, conceded that an income tax increase (from 3% to 4% in the individual rate, and adding 1.6% to the corporate rate), was necessary, even if all the cuts they argued for were made. Quinn initially proposed a 1.5% increase, from 3% to 4.5%. What eventually passed was essentially the Illinois Senate's proposed a 2% increase, i.e., raising the rate to 5%, which is what the more Keynesian and state-employee-oriented groups, such as CTBA, propose.
Critics of the tax increase warn that it won't be temporary but will be made permanent. They are correct; had I been in office, I never would have promised that. So be forewarned. The problem won't be a flip-flop in the future, it's that it wasn't straightforward in the past. Illinois still faces problems.
We need to talk honestly about who we tax. Anything Illinois does with the income tax is accomplished by an unsatisfying variation on a two-bracket theme. Two brackets is too crude and gores someone's ox no matter what. But income tax is only part of the Illinois tax scheme. Illinois has an
overall tax system that is regressive, arguably one of the more
regressive in the nation. Many middle-class Illinoisans pay a higher percentage of their income in state and local taxes than our top earners do. We compensate in part by corporate taxes that make businesses howl. A truly progressive income tax requires amending the Constitution; when will we see the courage for someone to take leadership on that?
The short-term demands living within slender means; the long-term requires restructuring and boldness. I've used the analogy of denial and avoidance, but there's a middle state of grief called bargaining; here, there perhaps needs Democratic acceptance of some Republican demands for reform, rather than buckets of pork doled out to individual holdouts.
What each participant demands and offers on the way to the inevitable will be a critical test of whether legislators are working for the common good, or just being extraordinarily selfish.
Back to Funding Illinois Government
The short-term demands living within slender means; the long-term requires restructuring and boldness. I've used the analogy of denial and avoidance, but there's a middle state of grief called bargaining; here, there perhaps needs Democratic acceptance of some Republican demands for reform, rather than buckets of pork doled out to individual holdouts.
What each participant demands and offers on the way to the inevitable will be a critical test of whether legislators are working for the common good, or just being extraordinarily selfish.
Back to Funding Illinois Government
