The clamor in Springfield for a tax increase has reached a near fever pitch. The conventional wisdom, we are told, is Illinois’ budget is so out of balance, so out of whack the only hope of solving this crisis is a massive tax increase on Illinois families and small business employers. A tax increase is the wrong answer for Illinois.
In the last few weeks, various tax increase proposals have emerged. News reports say a recent secret working group document calls for increasing the personal income tax rate by nearly 30 percent, from 3.75 percent to as much as 4.85 percent, and expanding the sales tax to include certain services.
The truth is Illinoisans cannot afford another tax increase. WalletHub.com recently named Illinois the state with the highest combination of local and state taxes in the entire nation. The last thing Illinois taxpayers need right now is for lawmakers to add to an already high tax burden in Illinois.
The reason Illinois’ financial health is in peril is three-fold. 1. The state has enormous pension obligations that reduce the annual amount of money available for other spending needs. 2. The state’s Medicaid spending is growing exponentially every year. 3. The state has done very little to curb wasteful and duplicative administrative spending, which is costing taxpayers.
We need to adopt a permanent budget by May 31 without a tax increase and based on a $32.5 billion fiscal year 2017 revenue estimate. We can fund social services, higher education and K-12 education. Most importantly, we can balance the budget without cutting services for the truly needy.
First, we need to reamortize the pension debt to give the state more time to make required annual contributions to the pension funds. The deadline we have imposed on the pension systems based on a 1995 law are arbitrary and can be changed. Restructuring the pension debt could reduce annual required contribution by more than $2 billion a year over the next few years. If we restructure the state’s pension debt and couple that as a first step with the meaningful pension reforms Senate President John Cullerton has proposed, we could free up meaningful money in the short-term and be on our way toward a real, long-term solution to the pension crisis.
Second, we need to freeze Medicaid spending levels while protecting everyone below 150 percent of the poverty level. Illinois is only receiving 50 cents from the federal government for every dollar spent on Medicaid. Some states are receiving more than 60 cents on the dollar. We need to aggressively pursue federal waivers and pursue other innovative ways to bring in $500 million to $1 billion a year of additional federal money into the Illinois Medicaid system. We also need to complete a private audit and eliminate Medicaid waste and fraud.
Finally, we need to reduce the cost of Illinois government. We need to consolidate unnecessary and duplicative government programs and agencies and find ways to run state government more efficiently. We also need to reduce state group health insurance costs.
Over the past couple of years, the state has operated with about a $36 billion budget. If we cut the overall budget by about 10 percent (not across the board, but by line item), we can solve the current budget crisis without raising taxes. The combination of pension reform, restructuring the state’s pension debt, freezing Medicaid costs and reducing administrative costs can provide the necessary savings to balance the budget.
Another significant reason not to adopt a tax increase is a lack of trust with the politicians to do the right thing. The 2011 tax increase came with promises of fiscal responsibility, but ended in more unpaid bills, a bigger budget and an even larger pension shortfall.
The path to fixing the Illinois budget lies not in raising taxes, but in solving the long-term budget structural problems facing the state. We also need to adopt policies that will promote additional economic activity and create additional jobs and taxpayers.
State Representative David McSweeney