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Thursday, April 26, 2012

Illinois is running out of time and money

After trying to tax Illinois to governmental solvency and economic dynamism, Pat Quinn, a Democrat who has been governor since 2009, now says “our rendezvous with reality has arrived.” Actually, Illinois is still reality-averse, so Americans may soon learn the importance of the freedom to fail in a system of competitive federalism.

Illinois was more heavily taxed than the five contiguous states (Indiana, Kentucky, Missouri, Iowa, Wisconsin) even before January 2011, when Quinn got a lame-duck legislature (its successor has fewer Democrats) to raise corporate taxes 30 percent (from 7.3 percent to 9.5 percent), giving Illinois one of the highest state corporate taxes and the fourth-highest combination of national and local corporate taxation in the industrialized world. Since 2009, Quinn has spent more than $500 million in corporate welfare to bribe companies not to flee the tax environment he has created.

Quinn raised personal income taxes 67 percent (from 3 percent to 5 percent), adding about $1,040 to the tax burden of a family of four earning $60,000. Illinois’ unemployment rate increased faster than any other state’s in 2011. Its pension system is the nation’s most underfunded, and the state has floated bond issues to finance pension contributions — borrowing money that someday must be repaid, to replace what should have been pension money that it spent on immediate gratifications.

Quinn’s recent flirtation with realism — a plan to raise the retirement age to 67 and cap pension cost-of-living adjustments — is less significant than the continuing unrealistic expectation that some of Illinois’ pension investments will grow 8.5 percent annually. Although the state Constitution mandates balancing the budget, this is almost meaningless while the state sells bonds to pay for operating expenses (in just 10 years the state’s bonded debt has increased from $9.4 billion to $30 billion), underfunds pensions and other liabilities, and makes vendors wait (they are owed $5.6 billion).
Read the rest here.

8 comments:

123 said...

Taxation isn't the issue in IL, neither are jobs negatively effected by taxation. Revenue isn't a major part of the problem in IL as it is at the federal level (along with entitlement and defense spending).

For instance:

"Scott Walker, the Republican governor facing a recall vote in Wisconsin, traveled over the IL line to argue that the tax increase backed by his Democratic counterpart Pat Quinn is killing jobs even as the Midwest rebounds from recession. “...When you raise taxes on businesses, that wealth and opportunity and those jobs more often than not go somewhere else", [Walker said in an April 17 speech in Springfield.]

A broader snapshot tells a different tale. Illinois ranked third while Wisconsin placed 42nd in the most recent Bloomberg Economic Evaluation of States index, which includes personal income, tax revenue and employment. Illinois gained 32,000 jobs in the 12 months ending in February, the U.S. Bureau of Labor Statistics found. Wisconsin, where Walker promised to create 250,000 jobs with the help of business-tax breaks, lost 16,900."

http://www.bloomberg.com/news/2012-04-20/republican-whipping-boy-illinois-beats-wisconsin-on-jobs.html

ochlophobist said...

IL revenue from corporate income tax in 2010 was only $1.36 billion. Presumably it was less in 2011 with purported reduction in corporate incomes and investment in the state. But the gov gave $500 million in corporate welfare since 2009. This might need to be considered when reading such playful phrases as "giving Illinois one of the highest state corporate taxes and the fourth-highest combination of national and local corporate taxation in the industrialized world."

The Anti-Gnostic said...

Bottom line, the IL government spends more than it makes. When you spend more than you make, you go broke.

123 said...

That is true, Anti-Gnostic, and while the headline of the article posted is accurate the body of the text pulls the traditional conservative shell game of then focusing on 'high' taxation as a primary part of the problem when that is not the case. As shown by the Bloomberg numbers, higher tax rates in IL than in surrounding states has led to an increase in jobs in IL compared to job losses in WI.

As every Obama Administration economics person has said (along with Krugman), increasing revenues on upper tier Americans while offering tax breaks and spending supports to those below that, as well as addressing entitlement and defense spending in the mid- to long-terms is the solution to the problem at hand. That is not what either Romney or Ryan or the House Republicans are agitating for, however, once one looks past the rhetorical sleight of hand.

Stephen said...

Wasn't Krugman the guy who advised ENRON?

123 said...

Nobel Laureate Paul Krugman has answered the point you are making here:

http://www.pkarchive.org/personal/EnronFAQ.html

An pertinent way of looking at such a comment is mentioned as an example here:

http://krugman.blogs.nytimes.com/2010/08/10/ad-what/

The Anti-Gnostic said...

As shown by the Bloomberg numbers, higher tax rates in IL than in surrounding states has led to an increase in jobs in IL compared to job losses in WI.

Then IL should not be in fiscal crisis, but they are. The problem, therefore, would appear to be unsustainable levels of net tax-consumption. Raising tax rates will not solve that problem.

123 said...

Thank you for repeating my point. Correct, revenue/tax increases alone will not solve the problem, but higher then average taxes are not the reason the IL budget is in trouble. That's the plot point conservatives always lose in discussions about deficits. Deficits are not just a spending and high tax problem.