A Better Illinois:
The Case for the Fair Tax to Help
Solve the Illinois Fiscal Crisis
John Bouman, President
Sargent Shriver National Center on Poverty Law Kankakee, Illinois
The General Funds Budget
• Disclaimer: numbers here not precise;
focus on concepts and magnitude
• General funds – checkbook = $34-35B
• Whole budget = about $66B
• General funds budget is 90% healthcare,
human services, education, higher ed,
public safety
• Balance is capital spending and special
funds (e.g., road fund)
Major General Fund Spending (2013)
• Fixed costs (debt, pension): $9.3B • Pre-K to 12 Education: $6.9B • Health Care: $6.7B • Human Services: $4.1B • Government Services: $2.1B • Public Safety: $2.1B • Higher Education: $2.0B • Total: $34.2B
• Individual Income Tax -- 44.9%
• Sales Tax -- 21.8%
• Federal Sources -- 11.7%
• Corporate Income Tax – 7.4%
• Public Utility – 3.2%
• Lottery and Riverboat Gaming – 2.9%
• Other – 8.1%
Structural Deficit – Revenue Problem
• Historic consensus on spending priorities
• Spending trending down
• Revenue system poorly designed – both
inadequate and unfair
• Inadequate: revenue does not grow with
inflation; thus increasingly behind spending
inflation – alligator jaws
• Unfair: among most regressive in the nation;
lower inc. taxpayers pay 2-3 times higher pct.
of their income than higher inc. taxpayers
Consequences of Structural Deficit
• Unpaid bills
– First Blagojevich budget cites $5B deficit
• Nationally lowest state contribution to public education (pressure on property tax)
• Over-borrowing
• Cut human services staff and programs
• Fail to meet needs or make key investments • Gimmicks: lottery, sell the lottery, gambling
Cuts Since 2000 (adjusted for inflation)
• P – 12 Education: 12.35%
– Overcrowding, fewer pre-K slots, property tax pressure
• Higher Education: 40.28%
– College out of reach, student debt
• Human Services: 32.98%
– Lost mental health services, programs closing
• Public Safety: 22.82%
– Quality of life, personal safety
That was before the recession…
• Chronic crisis became train wreck
• Mounting unpaid bills ($8B expected)
• Annual cuts to important human services
• Responsible Budget Coalition – balanced
response
• Medicaid cuts
• Budgeting for Results
• Pension reform process
Was the temporary tax increase worth it? Deficits with and without 2011-14 (billions)
-40 -35 -30 -25 -20 -15 -10 -5 0 No Tax Inc. With Tax Inc.
Would continuing the tax increase fix the
structural deficit?
No
Deficit would be smaller but the same
structural problem would ensure that it
constantly grows.
A “fiscal cliff” looms this year
• 1.25% of the 2011 income tax rate increase expires January 2015
• Halfway through the coming fiscal year • $2B lost in FY15
• $4.1B in FY16 • $4.6B in FY17
Fiscal Cliff Actions
Immediate FY15 problem • RBC principles
• Resist major cuts
• Fairness in cuts and revenues
• Address the short term problem (extend the temporary tax?)
• But remember there’s a long term problem • Adequacy – enough to get Illinois out of the
crisis, pay bills, keep promises, make smart investments
Fair Tax
• Long term that’s consistent with short term • People with lower income pay a lower rate,
people with higher income pay a higher rate • Like the federal income tax
• Grows more naturally with the economy to keep pace with cost of living
• Even if revenue increase, not a tax increase for all
• Thus addresses the structural deficit AND the fiscal cliff
Top Income Tax Rates in Other States
• All surrounding states except IN have fair tax • Iowa: 8.98% • Minnesota: 7.85% • Wisconsin: 7.75% • Missouri: 6.0% • Kentucky: 6.0% • California: 12.3% • New Jersey: 8.97% • New York: 8.92%
Illinois needs fiscal stability
• Business climate research shows that state and local taxes are a modest factor
• More important:
– Stability and predictability in state government – Educated workforce
– Good healthcare
– Strong transportation and infrastructure – Good services
– Competent management – Good credit rating
Illinois needs balanced pragmatism
• Those not in need are helped when the problems of those in need are addressed
– Educated workforce
– More consumers and entrepreneurs – Healthier and safer communities
– Moral standards kept
• Quality of life and equality of opportunity are values that apply to all
• Pragmatic problem-solving beats ideological gridlock
Legislative Phase for Fair Tax
• Pass resolution with 60% by May 4
• SJRCA 40 – 26 co-sponsors, 36 votes needed
• HJRCA 33 – 38 co-sponsors, 71 votes needed
• Over 100 allies in A Better Illinois • Polling shows a path to passage • Activities in targeted districts
• Coordinated effort in Springfield • Need MORE
Electoral Phase and Thereafter
• If resolution passes, then on ballot in Nov
• 60% of those voting on the measure, or 50% of those voting in the election
• Amendment ALLOWS Fair Tax
• General Assembly needs to pass it
• Lame Duck session – likely to be short term and long term (FY15 and reform)
Citations
• “The Illinois State Budget and Tax Primer”, Center for Tax and Budget Accountability, available at www.ctbaonline.org
• www.abetterillinois.org
• “Fiscal Policy Center’s Statement on Budget Forecast from Governor’s Office”, Voices for Illinois Children, Fiscal Policy Center,
http://www.voices4kids.org/statement-on-budget-forecast-from-governors-office/
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