Tax hike without reform described as potential repeat of last state fiasco
Those who do not remember where a lack of reform leads seem compelled to raise taxes, Michael Lucci argued recently.
With the strong possibility of another income tax hike being part of any Illinois budget agreement, the vice president of policy at the Illinois Policy Institute recently released an analysis of what happened the last time Illinois raised its income tax without putting spending reforms in place.
“The 2011 tax hike failed by all measures: It did not improve the economy, the backlog of bills barely budged, and the pension deficit exploded,” Lucci wrote. “Most importantly, the gusher of new tax revenue allowed Illinois politicians to kick the can down the road on reform – putting off the hard decisions for a later day.”
According to Lucci’s analysis, the increase was pushed through by lame-duck politicians. It hiked the personal income tax rate 67 percent, to 5 percent from 3 percent, and pushed up the corporate income tax to 9.5 percent from 7.3 percent.
At the time, Illinois Senate President John Cullerton (D-Chicago) -- who still holds the position -- argued that the increase would allow the state to make pension payments. The increase was also intended to help pay off Illinois’ backlog of bills, which stood at $7.9 billion at the time.
In 2014, when the hike expired, the state had raised $32 billion in revenue, but the addtional funding did not lead to the promised results, Lucci wrote.
The state had reduced its backlog of bills by just $1.3 billion after raising more than 24 times that much and was still left with $6.6 billion in bills. Pension debt also jumped to $111 billion by 2015 -- a $25 billion increase.
“Illinois’ deficits and long-term debts became substantially worse during the tax hike years,” Lucci wrote. “Tax increases could not solve a broken pension system and runaway spending. But one thing about the Land of Lincoln did change: The population started shrinking.”
Lucci points to U.S. Census Bureau data to show that Illinois lost 78,000 residents between July 2013 and July 2016 and was the only state in the Midwest to deal with a net loss in population. Iowa grew by nearly 43,000 residents, Missouri by just over 50,000 and Indiana by a whopping 64,000.
“…[A]fter four years and nearly $32 billion in new tax revenue, Illinois’ economy was a wreck, and the backlog of bills still stood at $6.6 billion,” Lucci wrote. “Masses of people picked up and left the state."
Before the spring legislative session closed without the General Assembly passing a budget, the Senate advanced a partisan budget proposal that would increase the personal income tax to 4.95 percent in a bid to raise $5.4 billion and balance the budget, according to a Chicago Tribune report.
Lucci contends that any tax increase would only be a repeat of the failures of the 2011 hike unless the General Assembly also puts significant reforms in place. Specifically, Lucci pointed to pensions, collective bargaining, Medicaid spending, prevailing wage rates and education bureaucracy as areas where the state must become more efficient.
“Additional tax hikes should not even be a part of the discussion until spending reforms are put in place to make the state’s finances sustainable,” Lucci wrote. “At the current trajectory, Illinois’ debts can easily spiral out of control and become unpayable regardless of how much tax rates are increased… . Until government gets its house in order, the Illinois families who finance the government should reject any additional tax increases.”