Illinois didn’t spend its way into a structural deficit, and it can’t cut its way out.
That’s according to Ralph Martire, executive director of the Center for Tax and Budget Accountability, a nonpartisan and nonprofit research and advocacy think tank.
Martire spoke Tuesday night during a virtual presentation on the Illinois Fair Tax amendment that is up for a vote on Nov. 3.
The League of Women Voters of McLean County hosted the event.
Martire provided center data showing Illinois has actually decreased overall general fund spending by 20% since 2000, including in areas like health care, education, human services and public safety.
He said while spending on early childhood and K-12 education has actually increased since then, current levels still aren’t enough to meet the need.
The state’s evidence-based school funding formula sets spending goals for optimized student achievement.
Based on that, Martire said, “We are actually $7 billion short of what the evidence indicates K-12 education needs for all of our schools to be able to provide a meaningful educational opportunity for students.”
There’s also the problem of Illinois’ massive pension debt.
Martire said the normal cost of benefits isn't driving the deficit; it’s actually declining, thanks to a new benefits system passed a decade ago.
The real culprit is the decision by state lawmakers to “borrow to spend” to pay those benefits, he said, referring to the so-called “pension ramp” passed in 1995.
Martire said the growth in the state’s pension debt service was five times its growth in revenues between the current and previous fiscal year.
“There is no way the state can make these payments, and that’s what’s crushing our fiscal system,” he said.
Reamortizing that debt is essential, but so is passing a graduated income tax, Martire said.
He said a graduated income tax is the only way to make taxes fair in Illinois because all other taxes and fees are regressive--that is, they take a bigger chunk out of the earnings of low- to moderate-income families than affluent ones, he explained.
And wealth inequality is growing in Illinois, Martire said. Based on state tax returns, he said, the average income for the wealthiest 1% of residents increased by 254% from 1979 to 2017. The bottom 99% saw just a 20% increase.
Martire said under the plan approved by the Illinois House and Senate this spring, the state would raise $3.6 billion by raising taxes on just the wealthiest 3% of Illinoisans, while the other 97% of residents would pay the same or less in income taxes.
“This isn’t some crazy 'eat the rich' strategy,” Martire said. “It’s about leveling the playing field.”
Those revenue projections assume a non-pandemic economy. But because COVID-19’s economic impacts have been concentrated on low-wage earners, real revenues wouldn’t be much lower, Martire said.
Republican elected officials at a January forum contended the proposed structure would shift the tax burden to the middle class once higher rates had driven the rich out of state, but Martire said raising taxes on the wealthy won’t send them packing.
“There’s never been a study that shows a statistically meaningful correlation between migration and tax policy,” he said. Taxes are one reason people move, but jobs, family, weather and housing prices are far greater drivers, Martire said.
Illinois does have a migration problem. But the people leaving aren’t the state’s top earners, he said.
“The people leaving Illinois ... are people earning about $25,000 or less,” he said, citing data from his organization. He blamed the state’s lack of jobs for low- to-middle income families as the reason residents are fleeing to neighboring states.
Wealthy residents won’t leave if their taxes go up either, Martire said. He pointed to California and Minnesota, where the net number of millionaires in the state continued to increase after passage of a graduated income tax. New Jersey did see an outflow of millionaires after passing similar legislation--of about 0.8%, he said.
If voters approve a constitutional amendment in November, the new proposed income tax structure would go into effect in January 2021.
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