Democratic Gov. J. B. Pritzker and the Legislature have gambled on a new direction for Illinois. The dramatic new course seeks to turn our state from a government mired in conflict, impasse and perennial deficits to that of big picture thinking, and big spending.
The two primary enactments this past month were a capital construction bill of breathtaking dimensions and a path toward significant higher income taxes to be imposed on the top 3% of earners.
The effects of the construction program for both transportation projects and vertical ones such as university laboratories and repairs will be felt almost immediately. An increase of 19 cents per gallon in gas taxes goes into effect July 1, along with sharp increases in licenses for drivers and their auto plates, as well as other fees.
Revenues from new casinos, sports betting, and more video terminals, always uncertain, are to pay for the university labs and other brick-and-mortar projects. I believe gambling revenue is fool’s gold and has been since the 1980s, when the lottery was sold as the solution to our school funding problems.
The possible income tax increases require us to vote in the November 2020 election on the issue of authorizing graduated, as opposed to the present flat, rates. If three-fifths of voters casting ballots on the issue say yes, then rates on those with incomes above $250,000 will go as high as 7.99%, from the present 4.95%.
The State of Illinois has seen its net assets decline from a negative $4 billion in 2002 to minus $150 billion this past year, according to annual reports from the state comptroller. We have been spending and obligating our state to almost $9 billion more each year than we have been taking in from taxes and fees.
The dust has not yet settled on actions taken on the budget for the coming year approved by the General Assembly, who put together a 1,500-page bill at the last minute of the scheduled session. Lawmakers had barely time to read the cover page before voting on it. Though the budget is proclaimed to be balanced, I fear we will record yet another deficit, as additional spending and business tax breaks (revenue loss) were added during the last-minute budget scrum.
Watchdog groups such as the Civic Federation of Chicago and the Civic Committee of the Commercial Club are deeply concerned that the hastily drawn spending products of the governor and Legislature represent neither sound planning nor performance measures to ensure efficient spending of taxpayer dollars.
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For example, tucked away in the capital “plan” are allocations of between $1.5 million and $6 million per each of our 177 legislators, depending upon the chamber and party of the member, to be spent as the member sees fit.
What is this new Pritzker model for state government? There are basically two, sharply contrasting models to choose from. Texas has its low tax/low service model; the Lone Star state has no income tax. In contrast, California has a high tax/high service approach; the top income tax rate in California is 13.30 percent. Both states achieved strong rates of economic growth from 2011 to 2016. Texas’ per capita gross domestic product grew by a compounded rate of 3.86 percent during the period; that of California by 3.23 percent; Illinois, 1.01 percent.
The Pritzker model is certainly high tax.
According to the Tax Foundation, Illinois already had the fifth-highest state and local tax burden in 2012 (latest year comparative data published). The problem the new governor and Illinois policymakers face is that our state has extraordinary legacy costs. Those result from earlier misdeeds regarding our quite rich public employee pension systems, as well as from higher-than-typical overall costs for our huge federal-state health care system, which covers 3.1 million low-income and nursing home residents.
I believe the growing unfunded liabilities for both our state government as well as local police-fire pensions are unsustainable, and that benefits must be trimmed. The governor disagrees, saying the issue is solely how to pay for the pensions.
If we didn’t have these high costs, Illinois could be high tax/high service. However, once spending for these services is taken out each year, the best the Illinois model can be, even with the yet to-be-determined higher income taxes, is high tax/low-to-medium service.
Thus, Pritzker faces at least two tough challenges, one political, the other about economic development.
First, he must prove to motorists his infrastructure program will generate more improvements for our decrepit highways than cost at the pump. As for economic development, the governor has to show the world, especially business and entrepreneurs, that his investments in infrastructure, universities and the people of Illinois will offset the high taxes and make the state a better, more attractive place to work and live.