Fun with Illinois Tax Facts

16Dec2006 Filed under: Chicago Author: Mike Van Winkle

Ralph Martire makes the case in today’s Sun-Times that Illinois’ budget problems are caused by the so-called “structural deficit.” According to Martire “Illinois’ tax system fails to raise sufficient revenue to fund the public services provided today.” The logical fallacy here is pretty obvious. Martire assumes public services are something constant and unchangeable whereas the tax rate is variable. The truth is services are equally variable; Blagojevich has added free preschool and expanded health care access in just the last year or so.

All deficits are deficits of choice. To paint ours as one over which have no control is dishonest.

More troubling is Martire’s claim that Illinois is a low-tax/low-spending state:

Cutting spending won’t solve the problem. Illinois is a low-spending (42nd) and low-tax (48th) state, despite being fifth most populous. The ongoing state deficits are caused primarily by revenue shortcomings, not wasteful or profligate spending.

Martire is not lying out right. If we look only at the state government, Illinois’ tax-rate is one of the lowest in the country. But this is not the complete picture. We pay taxes to more than just the state government. Illinois has some of the highest local property taxes in the country (9th highest) and our federal income tax burden ranks 10th in the nation.

When we consider all the taxes that Illinoisan pay together, Illinois has the 10th highest tax burden in the country!

The same goes for spending. The only way spending in this state ranks low is by looking ONLY at the state’s expenditures. We’d have to ignore the largess in the city of Chicago, the Stroger Regime, the school districts, and various other taxing bodies in the state.

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5 Responses to “Fun with Illinois Tax Facts”

Jeff
December 16th, 2006 at 11:58 pm

The structural defecit has nothing to do with “public services.” The fact is that the state — along with nearly every other public body in the nation — owes a tremendous amount of money in pension and healthcare obligations to retirees. Furthermore, the rate of increase in these obligations far outstrips inflation as the cost of health care rises and more people retire and live longer. Since those costs rise faster than tax receipts — that’s called a structural deficit. We have a deficit before we even start talking about public services, which, in any case, are dwarfed by the amount of money owed employees and retirees. We can’t cut these programs because they have already been promised to people who have worked honestly and nobly for decades. Could we renege on these promises? Sure, but then you’d have to get past the tens of thousands of public employees who vote in each election, and no politician, no matter how ironclad his conservative spending philosphy, will be able to go back on those promises.

Don’t blame this on public schools. We spend more on prisons, anyway. And both costs are drops in the bucket compared to the pension deficit.
Mike
December 17th, 2006 at 7:51 am

Jeff, well said. It’s also important to note that the main reason pensions are such a problem now is that we’ve borrowed from the fund for a number of years and have refused to move new employees into defined contribution plans.

Also Medicaid, one of the other big “structural” budget items, can still be reformed to make it cost less. Instead of reimbursing providers, we could provide insurance vouchers to eligible Illinoisan.

Even “structural” deficits are deficits of choice right?
Jeff
December 17th, 2006 at 11:54 am

They’re only deficits of choice if you’re willing to put Grandpa out on the street. Until you can unwind that issue, you’re going to have structural deficits.

The thing conservatives don’t understand about pension policy is that most pensioners rely on the promises that have been made to them. Most people, when given the opportunity/forced to invest for themselves, fail miserably. Just look at the stats in the private sector concerning levels of investment and rates of return for employees who were moved off definied benefit plans and moved onto 401k’s and the like. The general public is lousy at it.

If we were creating a pension system from scratch, there is no doubt that we would make fewer promises (as long as we give people the proper tools/incentives to suceed on their own). But we’re not doing that, so the only answers are 1) Make seniors go back to work or 2) raise taxes.

As I said, even the most fiscally conservative politician will choose #2 over #1. Good luck trying to change their mind.
Daniel Messick
December 17th, 2006 at 11:34 pm

Jeff, the “general public” may be lousy at achieving significant rates of return on their 401K retirement investment, but I for one achieve a pretty good rate of return because I believe that I am responsible for my retirement, and therefore it is incumbent upon me to become at least a somewhat involved investor, (doing simple things like reading “Money” magazine and the like) as it relates to my 401k, which I check on at least a twice weekly basis.
Now, I got into a pension with my company roughly a year before they scrapped pensions for new employees, but by no means am I counting on it despite the fact that I am fully vested in it.
That said, the pension system as is currently managed is a pathetic joke, and as a tax payer I take serious issue with having to bail it out through higher taxes due to political ineptitude.
Collin Hitt
December 18th, 2006 at 1:07 pm

Nobody is blaming the sad fiscal shape of state government on public schools (unless you agree with the Chicago Reporter that our drop-out factories are costing the state $10 billion, annually). However, using the public schools and “public services” as red herring to raise taxes, in order attempt to pay down the structural deficit, is every bit as disingenuous as blaming the mess on the public schools in the first place.

Public schools deserve their own day in court, and isolating the issue of school reform has been the work of the Right, not the Left, unfortunately.