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 Just months after Illinois voters rejected Gov. J.B. Pritzker’s
progressive income tax, House Speaker Emanuel “Chris” Welch is floating the idea
again – this time, to pay for pensions.
“We need to tell the taxpayers how we will spend this money,” Welch said at a
Feb. 24 event with the Economic Club of Chicago. “Tie progressive tax(es) to
paying off pension(s). Voters will trust us more.”
Pritzker projected his progressive tax would bring in an additional $3 billion
in revenue, but he planned to spend only $200 million of that money on pensions.
Illinois’ annual pension payment this year will cost taxpayers $11.6 billion.
If the state wanted a progressive tax to pay down pensions, it would have to
raise taxes on all taxpayers by around 21%. A tax hike of that size would cost
the state economy nearly 127,000 jobs and $21.8 billion in economic output.
Illinois lawmakers have claimed for years that new tax hikes
would pay down debt and fund pensions. They keep trying and failing to make that
formula work.
After the 2017 income tax hike, Illinois’ total tax burden is already at least
the sixth highest in the nation. But despite regular tax increases and record
revenues, the state has not balanced a budget in 20 years.
Illinois has a spending problem, not a revenue problem. Most of the overspending
is for pensions. Inflation-adjusted pension spending has increased more than
500% since 2000, causing spending on other core government services to fall by
nearly one-third during the past 20 years.
Illinois will not be able to fix its infamous pension crisis or achieve a truly
balanced budget without a constitutional amendment that allows for pension
reform. An amendment to hike taxes cannot fix the problem.
Nothing could be worse for the Illinois economy than another push to hike taxes.
Economist are in near-unanimous agreement that hiking taxes during or just after
a recession impedes economic recovery and can extend downturns. In 2009,
then-President Barack Obama agreed with a questioner who raised this point,
saying “[The questioner’s] economics are right. You don’t raise taxes in a
recession.”
It’s imperative lawmakers take up the cause of reform instead of leaning on an
idea that won’t work and was just rejected by taxpayers.
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Pension costs are already eating away at Illinois
government services. The ballooning costs caused a nearly one-third
cut since 2000 in core services such as child protection, state
police, mental health and college money for low-income students.
Pension contributions accounted for less than 4% of Illinois’
general funds budget from 1990 through 1997 but have grown to
consume 28.5% of the budget. Still, the pension debt has mushroomed
to $144.4 billion by the state’s estimates, which more realistically
was at an all-time high of $261 billion at the end of fiscal year
2020 according to Moody’s Investors Service calculations using more
realistic assumptions. In any case, public pension debt is eating a
larger chunk of Illinois’ gross domestic product than anywhere else.
Those already receiving unemployment benefits
dropped both in Illinois and in the U.S. for the week ending Feb.
13. Illinois saw 2,611 fewer workers receiving unemployment than a
week earlier, for a total of 272,065 unemployed. That number across
the nation was also down by 101,000 to 4.42 million for the week
ended Feb. 13 from 4.52 million a week earlier. Benefits data lags
new claims data by a week.
Illinois saw new claims spike when Tier 3 mitigation mandates were
imposed Nov. 20 by Gov. J.B. Pritzker, closing all indoor service at
bars and restaurants as cold weather set in and made outdoor service
difficult. Those restrictions were eased for most of the state Jan.
23, and have eased more since then.
Last week’s rise in new claims came as more employers faced fewer
restrictions and as the state’s COVID-19 7-day positivity rate fell
to 2.6%. The state recorded 2.3 million vaccine doses administered
as of Feb. 24.
As businesses struggle to recover from COVID-19 and put people back
to work, Pritzker proposed nine new taxes worth nearly $1 billion,
mostly targeting employers and efforts intended to create jobs, as
part of his fiscal year 2022 proposed budget.
That move comes after data reveals the COVID-19 crisis and
Pritzker’s mandated closures hurt low-income households four times
more than their better-off counterparts. Those families and women
were more often employed in the leisure and hospitality sector,
which suffered 40% more during 2020 in Illinois than across the U.S.
Across all job sectors, 2020 was the worst year for jobs in Illinois
history.
Raising taxes during an economic crisis defies the advice of most
economists as well as common sense.
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