Pension proposal would include extending state income tax

Pension proposal would include extending state income tax

SPRINGFIELD — He called it "constitutional, credible, comprehensive and fair to those in the system," but state Rep. Lou Lang's proposed fix for Illinois' mammoth pension debt may be short of its most critical need: support.

Lang, a Skokie Democrat, on Wednesday introduced HB 2375 which includes not just one but several controversial aspects:

— Making the 67 percent income tax increase enacted in 2011 permanent and devoting virtually all of its revenue to pension payments.

— Gradually raising employee pension contributions by an additional 3 percent of their annual income.

— Raising the minimum retirement age to 67 for a full pension.

— Gradually shifting pension costs from the state government to universities and local school districts.

— And calling for 80 percent funding of system funding instead of 100 percent.

"I'm not worried about the politics," Lang said. "I'm worried about the pension system and the credit rating and the pensioners in the state of Illinois."

But while he said his plan would solve the state's pension mess, it wouldn't do anything about the backlog of bills that, according to state Comptroller Judy Baar Topinka, totals $9 billion.

"We have a responsibility to pay that backlog of bills, but we also have a responsibility to make the pension payments and so we're going to have to be more frugal, we're going to have to find economies of scale, we're going to have to cut back where we need to cut back," Lang said at a press conference.

No co-sponsors were listed on Lang's bill — he said he hadn't discussed it with anyone and had just introduced it Wednesday — but when asked about it, state Rep. Naomi Jakobsson, D-Urbana, said, "I'm not sure that that will fly. When we designate that certain things must go to one area, we set ourselves up for some problems in the future."

Jakobsson acknowledged that she hadn't seen the legislation but said she continues to believe the solution to the state's fiscal problems lies with a switch from a flat income tax to a progressive one.

Lang, a lawyer, said there are two critically important features to his bill: It is constitutional, and it would guarantee that pension payments are made every year. The state's pension debt is estimated at $97 billion.

"We know that each and every one of the current plans on the table before today is a plan that will bring about lawsuits, delaying any action on pensions," he said. "And we know from a reading of the Constitution that those plans are unconstitutional. This is a plan that is constitutional, it's fundable and it's a plan that won't take anyone's benefits away that have been promised to them under the Constitution of the state of Illinois."

Several different pension reform ideas have been introduced in the Legislature. One, introduced by Senate President John Cullerton, has been endorsed in principle by Gov. Pat Quinn, but its constitutionality has been questioned by some who claim it would diminish benefits for state pensioners.

"One of the reasons we're in the mess we're in is that the General Assembly has chosen to take pension holidays from time to time, make a payment that was less than the normal cost or make no payment at all," Lang explained. "This bill would guarantee the pension payment."

Lang also said his bill would "rebate" to taxpayers all excess revenue above the needed pension payment, beginning in 2014. But he had no estimate for that amount, and he said that actuaries for the state's five pension systems had not reviewed his proposal.

Asked if making the income tax permanent would doom his plan, Lang said, "There are people in this building who will never vote to extend the income tax increase. On the other hand, I don't think there's anyone in this building who doesn't believe we need to extend the income tax increase. If we're going to need it anyway, we might as well need it and dedicate it to a specific cause, a cause that we all believe needs to be resolved."

Illinois' individual income tax rate was increased from 3 percent to 5 percent in January 2011. But a provision in the legislation says that the rate will drop to 3.75 percent in January 2015 and to 3.5 percent in 2025. Lang's legislation would maintain the rate at 5 percent.

The income tax increase was approved two years ago without a single Republican vote, and it's unlikely any Republican would support an extension.

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serf wrote on February 20, 2013 at 7:02 pm

It's the closest thing to a reasonable solution that I've seen so far.

 

Naomi has no credibility on the issue, considering she voted for some of the pension holildays in the past (someone please correct me if I'm wrong on that).

 

 

cretis16 wrote on February 21, 2013 at 7:02 am

Naoimi also is pushing this tiered income tax plan...on the surface it looks fair...smaller earners pay a smaller percent. But look at all the other states use of this prop......the higher rates kick in at 10K....only the first 10K is low tax.

Temporary tax? OXYMORON?

 

Bulldogmojo wrote on February 20, 2013 at 8:02 pm

To steal a Dennis Miller'ism to illustrate the gravity of the situation. If there was only ONE person in the state of Illinois, he would have to kick in $96 BILLION DOLLARS!!!

The self managed 3rd part companies have been paid all of the state's contributions because no private company would be stupid enough to take an IOU so let's not look to the Foxes to replenish the chicken population. Turn it all back over to the IRS and everyone go back to social security.

" Lang explained. "This bill would guarantee the pension payment."...Really?? Wasn't the state constitution supposed to take care of that? It's apparently on an Etch-A-Sketch

serf wrote on February 20, 2013 at 9:02 pm

Really?? Wasn't the state constitution supposed to take care of that?

No.  The state constitution mandates that a pension benefit, once earned, is a contractual agreement that cannot be diminished.  It says nothing about mandating that the employer actually make the payments in a responsible manner.

Sid Saltfork wrote on February 20, 2013 at 9:02 pm

Those who are not public employees must get confused regarding "pension reform".  Many think that there is only on set of policies for state pensions.  They are unaware of the differences between the university employees pension system (SURS), state employeees pension system (SERS), the general assembly pension system (GARS), the judges pension system, and the teachers pension system (TRS).  Each pension system is different.  University employees pay into their pension system; but historically were not allowed to pay into the Social Security Retirement.  State employees were required to pay into both the state employees pension system, and the Social Security Retirement.  That is to say that neither the state employees system, nor the university employees system is the better system.  The employees had no choice regarding their pension systems.  They just paid into their pension systems with every paycheck.  They had no choice about that either.  It was their employer who did not make the legally required pension payments.

The judges pension system has been "exempted" from "pension reform".  Guess why?  The general assembly pension system (GARS) is the cream de cream of the pension systems.  It is the state employees, university employees, and teachers that are being robbed.

I have to agree with Serf though.  Lang's plan would pass the legality test of the State of Illinois Constitution.  It makes too much sense, and requires financial responsibility; therefore the legislature, and governor will not let it pass.  I am disappointed with Naomi.  The large number of state, and university retirees in this area expected more from her.

Happy401 wrote on February 20, 2013 at 10:02 pm

31 states already have higher individual income tax rates than Illinois' 5%. And most of those have progressive rates with the top rate being quite a bit higher than 5%

Sandy wrote on February 21, 2013 at 2:02 am

I do remember Jakobsson voting for pension holidays in the past..

Citizen1 wrote on February 21, 2013 at 6:02 am

I've been cheated.  I've been promised.  I've been lied to.   Scream and complain.  This is not fair.


Yes boy and girls, the state promised that the income tax increase was temporary!!!!!  Gee does my complaint sound just like those on the public dole, oops I mean public pensions. 


Until someone admits that public pensions are way overly rich, that public employee are paid at a level far above the private sector and until public pensions are capped, this proposal is just plain stupid.  Public pensions can not continue in their current state.  This proposal does nothing to solve the ongoing problem.


The proposed so called solution is simply a redistribution of wealth from average Illinoisians to public fat cats who received 85% of their last salary in pensions far in excess of what the average person receives.  Robin Hood in reverse.  Only in Illinois.

ejhickey wrote on February 23, 2013 at 9:02 am

when the democrats told us the increase in the income tax was temporary, i knew they were lying.  however this is only the first of many more increases .   expect the democrats to increase the sales tax, corporate tax and the income tax (again)   and to start taxing pensions ans retirement income