Illinois state taxpayers who think they are paying more and receiving less are absolutely right.
At least on the paying more portion. According to a recent study by Reboot Illinois, an organization with a conservative look at state issues, state income tax receipts doubled between 2010 and 2012, primarily because of the state’s “temporary” income tax increase.
The result of that, according to a report by the nonpartisan Institute for Truth In Accounting, is that Illinois residents are paying a higher percentage of their income in state taxes than the surrounding states of Iowa, Wisconsin, Michigan, Indiana and Ohio.
The 67 percent income tax increase was approved in early 2011. It has served its intended purpose by supplying new revenues to the state’s coffers. But the offer made by supporters of the tax increase was that the money would be used to pay down the state’s debt and a solution would be found to the state’s growing unfunded pension obligation. That hasn’t happened. The result is that residents are paying higher taxes, but the state’s financial position has declined.
The situation is even more troubling if you look at economic trends. Between 2005 and 2012, the gross domestic product in Illinois grew by about 3 percent a year. Over that same time period, the state’s tax revenues nearly doubled, increasing by as much as four times the state GDP, according to the folks at Reboot Illinois. Even if you accept that government should grow at roughly the same level as the GDP — a somewhat shaky assumption — there’s no justification for government revenues to increase four times faster than the GDP.
Such an increase in revenues would be a little more acceptable if the state’s bills were paid and state services were such that taxpayers might think the extra bucks were worth the superior services. But that’s not the case. The state’s bill backlog is on the increase once again, and every part of government, public safety, education, social services, prisons, highways and others, has less money to spend because an increasing amount is going to pay for the state’s pensions. Think of the state like a business. The slogan “Pay more, and get less” is not a good sales proposition.
As we’ve often said, the first step toward solving this problem is pension reform. As the weeks pass by without any progress, the situation only worsens.
The other conclusion is that the state doesn’t need more tax dollars. Illinois taxpayers are providing plenty of funds to the state. Extending the temporary tax increase or a switch in tax systems that will ultimately lead to a tax increase are not the answer. Raising taxes even further will drive more jobs and residents to other places. Illinois companies don’t have to move out of the country to improve their bottom line; they simply have to cross any of the state’s borders.
The state has plenty of money with which to operate. It needs to do a much better job of managing the tax revenues it does receive.