When faced with crisis and a need for new revenue, our 16th president passed the first federal income tax in America’s history. But today, in the Land of Lincoln, Illinois state leaders have taken a drastically different approach. Gov. Bruce Rauner wants to address the state’s $6.1 billion budget gap with massive spending cuts to healthcare, education and other public services in a budget proposal denounced as “morally reprehensible” by critics in the state.
Meanwhile, the Illinois Supreme Court ruled last week that a 2013 pension reform law that reduced cost-of-living increases for retirees and raised the retirement age was unconstitutional. The law would have reduced Illinois’ unfunded pension liability by 20 percent; as things stand now, pension payments account for 25 cents of every dollar in the state budget. Rauner wanted to move current state employees into a plan which provides fewer benefits, adopted in 2010 for new hires, but this proposal is likely unconstitutional as well.
Illinois lawmakers were already grappling with how to solve the budget deficit – a deficit made worse by the expiration of a temporary increase in the state’s flat personal income tax rate from 3.75 percent to 5 percent. Now, they will need to find additional funding for the state’s pension system. Needless to say, it is time for the governor and state lawmakers to solve this revenue crisis with sensible solutions, not stop-gap measures. And time is running out: May 31st, the scheduled end of the legislative session, is just around the corner.
The fact of the matter is that Illinois does not have a spending problem. It has a revenue problem. Thirteen years ago, ITEP released a report detailing tax reform options for Illinois, observing that “the state’s low reliance on a narrow-based, flat-rate income tax, its generous yet inequitable sales tax exemptions, and its disproportionate reliance on regressive local property taxes all reduce the long-term yield of the tax system—indirectly undermining the state’s ability to provide services to its citizens.”
More than a decade later, the Illinois tax system is still balanced on the backs of the poor. ITEP’s 2015 Who Pays? report ranked Illinois fifth among the nation’s most regressive tax systems. The poorest 20 percent of Illinoisans pay nearly three times more in state and local taxes as a portion of their income than the top one percent.
Friday’s court ruling has proven that lawmakers can no longer rely on gimmicks to delay the inevitable. Nor should they rely on self-defeating budget cuts that will lead Illinois away from the path to prosperity. Instead, the state’s leaders should do what a growing number of observers have urged and implement progressive tax reforms. A new report from the Fiscal Policy Center at Illinois Voices for Children outlined a host of options–from raising the income tax rate to closing corporate loopholes– that would put Illinois on sounder footing. “Governor Rauner and lawmakers have choices,” its authors note. “By selecting from a range of revenue options to close next fiscal year’s over $6 billion budget hole, they can avoid devastating cuts to services for children, families, and communities.”