Illinois residents should say no to progressive tax hike

Illinois residents should say no to progressive tax hike

By Ben VanMetre

Imagine a friend asked you to help him out of his financial problems. He had been living extravagantly for years, spending much more money than he earned at his job. But he promised he would change his ways, and asked you for a little cash to help pay down his mountain of debt and maxed-out credit cards.

You say, "OK, I'll help." You give him some money to help him climb out of his financial abyss.

Now, nearly three years later, his finances are still a mess. So what does he do? He comes to you and asks for more.

That's exactly what's happening in Illinois government.

Lawmakers made Illinois taxpayers pony up more of their hard-earned income by passing a record income tax increase in 2011. The politicians said the extra cash was absolutely necessary to pay down the state's backlog of bills, stabilize the state's pension crisis and strengthen Illinois' economy.

But Illinois lawmakers failed on all accounts. So what are they doing now? They're asking for even more of your money.

Here's how they want raise taxes again: by swapping out Illinois' constitutionally protected flat-rate income tax for a progressive tax that would increase tax rates on 85 percent of hardworking Illinoisans. And, thinking we won't catch on to their ploy, they're calling this tax hike "tax reform."

Progressive tax hike advocates are trying to paint the tax hikes as a solution to all of the state's financial issues. They're making the exact same promises about the state's unpaid bills, pensions and economy that they made during their sales pitch for the last tax hike.

Think back to your friend. If he asked you for more money, but gave no indication that he was going to change his ways, would you enable him? Of course not!

Illinois needs reform, not more revenue through higher taxes. The failures of the last tax hike are proof of that.

The 2011 tax hike has generated $18 billion in new tax money since it was passed.

But even with $18 billion in new revenue, Illinois still has a massive backlog of bills, ballooning pension debt and a crumbling economy. Politicians failed to keep their tax-hike promises.

Because of the 2011 state income tax hike, families and businesses have been forced to live with less. But politicians have not been held to those same standards.

Instead, they've squandered the new money away in political games and papered over the need for real reform.

Not only did lawmakers fail to pay down the unpaid bills, but the backlog actually grew.

In January 2011, the month the tax hike was passed, Illinois' unpaid bills totaled $8.5 billion. Nearly three years later, with record-high revenues on hand, Illinois is nearing $9 billion in the red. While the debt has fluctuated over the years, it has never been erased.

Despite dumping billions of the additional tax-hike revenue into the state's pension systems, Illinois' pension debt has also grown.

The state's official unfunded pension liabilities will grow to more than $100 billion during the current fiscal year, up from $83 billion in 2011. That's because politicians dumped money into the pension systems instead of fixing them. Giving politicians money through a progressive tax hike will allow them to do it again.

And the state's economy? Illinois has the nation's second-highest unemployment rate, with more than 600,000 Illinoisans looking for work.

The only thing the 2011 tax hike did was allow lawmakers to skirt meaningful reforms as the state's economy continued to crumble. Another increase in the state's income tax — even one masked as "tax reform" — is the last thing Illinois needs.

Lawmakers need to be held accountable and overhaul the way the state spends tax dollars. That doesn't mean aimlessly cutting the budget — it means modernizing the entire spending process to save money and improve outcomes.

The first step in this spending overhaul is to address Illinois' pension crisis. The state needs to swap out its outdated and unmanageable defined benefit pension system for one modeled after the 401(k)-style plans used by more than 85 percent of the private sector and by more than 17,000 state university workers.

It's often said that insanity is the act of doing the same thing over and over again and expecting different results. That's been Illinois' broken strategy for decades. Revamping broken policies of the past and selling those failures as solutions to today's financial problems will not fix Illinois. Say no to the progressive tax hike.

Ben VanMetre is the senior budget and tax policy analyst for the Illinois Policy Institute.

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vulcan_idic wrote on September 23, 2013 at 1:09 pm

 

 

 

Mr. VanMetre's anecdote above is entertaining and appeals emotionally to many sympathies we are taught to have - a value for hard work and not taking something for nothing among them.  Unfortunately this anecdote is the worst sort of red herring confusing the point entirely.

The debt of the state is not the state government's issue.  It is our issue.  We enjoy using well paved and well maintained roads.  We enjoy having our rights and liberties protected by police men and women.  We enjoy having our property protected from being immolated in an inferno by firemen and firewomen.  We all are enriched beyond measure through school systems that educate our children, the employees we hire, and the workers whose goods and services we wish to use.  Many people work very hard to make these things a reality.  It is only right they be compensated for them.  The debt we have all incurred is to pay for the people and goods involved in making our state run.  There are certainly inefficiencies, but I for one value that inefficiency, because I value the political system that generates it.

A democratic republic is an inefficient way of governing.  You have to take into account many disparate and conflicting perspectives, wants, needs, and ideologies; but it is exactly for that reason that I value that system.  The alternative is a system which is more efficient but pays not attention to the voices of the governed, such as the British monarchy against which the colonists rebelled when their voices were not heeded.  We as a nation have chosen an inefficient system, and it is a good system that is well worth it's inefficiencies.

Pensions are at the heart of the current struggle and I think it is shameful for anyone to argue that those who have worked hard all their live should not have a decent pension for their old age.  Paying people who worked hard all their lives is the only honorable thing to do, but beyond that, for dollars and sense people who don't seem bothered by cutting pensions like Mr. VanMetre, it makes sense for the community.  The pensions we pay to the people who have earned them are, in turn, spent on food, lodging, entertainment, and all the other facets of living.  Paying people a good pension not only enables them to have a decent standard of living, it also provides a constant stimulus to the economy, which is a benefit even Mr. VanMetre should appreciate.  Admittedly this pension burden is quite acute at the moment due to the post-war population boom and the much larger portion of the population, percentagewise, that are now of pension age.  The strain of this population shift however is no reason or excuse for shirking one's responsibility.  Just because a responsibility is difficult or unpleasant in no way removes the onus of that responsibility from us.  Indeed, that is precisely when it is most needed for that responsibility to be fulfilled.

I agree with the values Mr. VanMetre's anecdote promotes - hard work and not taking something for nothing... which is precisely why I support a “progressive” tax hike, even one two or three times the one propose so we can pay down our debt and improve our infrastructure and economy.  We have all benefited from the things we have collectively spent our money upon.  Mr. VanMetre seem to disapprove of his friend not paying his debts, even so we must pay our debts for the debts incurred our not someone else’s problem they are ours, thus we should appropriately all be willing to pay our share to fulfill our duty.  This tax hike is not truly “progressive”, it is just and fitting asking each of us to pay the fair value of the benefits of being a citizen of Illinois.  It feels harsh because we have been living on our credit card not our income.  Now it is time to pay our debt and live within our means.  And because we do not want to shirk our duties or give up our roads, police, fire protection, schools, emergency medical network, national guard, political salaries, and other things that our wages pay for this means we must pay more not only in order to pay our debts, but pay for the costs of these things we want even as the cost for those things increases.  It also means accepting the inefficiencies and costs of those inefficiencies as one of the many prices we pay for living in a free and democratic society.  Truly, the tax hike, whether viewed as “progressive” or not, is clearly necessary and important and should be supported by Illinoisans.  I sincerely hope that we as a State will not be fooled by Mr. VanMetre’s red herring nor the dishonorable argument that follows it.

yates wrote on September 23, 2013 at 2:09 pm

Damn sure nobody will be fooled your democrat talking points either Vulcun. We have been riding that merry-go-round long enough to see failure when it stares us in the face.

Joe Melugins wrote on September 23, 2013 at 5:09 pm

Wisconsin has the best funded state pension system out of all 50 states, despite the fact that their teachers and tate employees have historically, and currently pay far less out of their paychecks towards their pension than do their Illinois counter parts.

The Wisconsin legislature in 2011 increased what public employees must pay toward their pensions. Before the law passed, workers paid less than 1 percent of their salaries –in some cases nothing – toward pensions. Under the new law, public employees pay 5.8 percent to 6.65 percent, according to the Milwaukee Journal Sentinel. Pension benefits themselves were not changed.

Most Illinois public employees already pay more than that. Teachers contribute 9.4 percent to their pensions, state university employees pay 8 percent, judges pay 11 percent and legislators pay 11.5 percent. State employees pay 4 percent if they also contribute to the Social Security system and 8 percent if they do not.

The difference is that the State of Wisconsin made its employer's pension contributions every year rather than modifying or skipping them like Illinois State Government did.  And how did Wisconsin have enough money to make those payments and Illinois didn't?

Individual state income tax rates:

Illinois:  5% (after being 3% for 20 years)

Wisconsin:
-- 4.6 percent on the first $10,070 of taxable income.
-- 6.15 percent on taxable income between $10,071 and $20,130.
-- 6.5 percent on taxable income between $20,131 and $151,000.
-- 6.75 percent on taxable income between $151,001 and $221,660.
-- 7.75 percent on taxable income of $221,661 and above.

Illinois was able to keep an artifically low 3% tax rate for 20 years by modifying and skipping pension payments.  And all of us Illinois tax payers benefitted from that artificially low tax rated.

Around 32 of the 41 states that have state income taxes have a progressive tax structure.  And by the way,  the nine states with the highest income tax rates are outperforming the nine states with no state income tax, when comparing Gross Domestic Product per capita, household income per capita, and employment rates.   http://www.itep.org/pdf/lafferhighrate.pdf

 

 

bmwest wrote on September 24, 2013 at 10:09 pm
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Although the progressive income tax would be the better approach, an alternative to consider is simply increasing the personal exemptions.  For instance, the exemptions could be set at twice the poverty threshold for your family size.  For a family of 4, that would be $47,100.  As it stands now, that family has to pay taxes on all income over $8,400.  You shouldn't have to struggle to overcome poverty and have income taxes as one more burden to keeping food on the table.  My back of the napkin math indicates the tax rate would need to be something like 7% compared to the current 5% for the amounts over the exemption to remain revenue neutral.  That's pretty comparable with surrounding states' progressive rates but this approach doesn't require a constitutional amendment.

Bulldogmojo wrote on September 26, 2013 at 12:09 pm

It's peculiar to discuss this as if any plan could succeed under the umbrella of corruption that still looms over Springfield or under a banking system that is unresponsive to markets and only to it's own corrupt skirting of the law for it's own ends.

Like this absurdity...

http://www.huffingtonpost.com/2013/09/22/robert-benmosche-too-big-to-fail_n_3972297.html