Civic Federation: Illinois Needs $9.4 Billion in New Taxes by 2019 to Survive

The Illinois budget situation has been bad for a long time, but the current eight-month budget stalemate has made the picture even bleaker.

The only way out, according to the Civic Federation, is a host of spending cuts, structural changes and massive new taxes.

It's not too late to put the state back together, but because of the stalemate and the further damage it’s caused to Illinois huge debt situation, it will cost taxpayers a lot more to put it back together.

To put it into perspective: The Civic Federation is no bastion of liberal tax-and-spend policies – they are mostly a right-of-center organization made up largely of business leaders. For them to admit that new taxes are inevitable means the situation really is bleak. And they are proposing a host of them.

Laurence Msall explains that, because 90 percent of the budget is already being spent this year without money to pay for it, cuts alone won’t come close to fixing the problem.

“The state has basically spent the entire $32 billion of revenue that it had available,” he said. “We still have five months left in the fiscal year. We’re not going to close a $4.7 billion deficit just by cutting spending. There’s not enough time. We haven’t even funded higher education or critical social services. We’re incurring obligations even though the state doesn’t have a budget for it.”

A tax on retirement income has largely been a third rail in Illinois. Different estimates show that could bring in about $2 billion in new revenue per year. The Civic Federation is recommending that it be progressive – that only those that have retirement income in excess of $50,000 get taxed.

Laurence MsallLaurence Msall

Msall says the tax will bring Illinois in line with its neighboring states.

“Every surrounding state that has an income tax taxes your retirement income,” he said. “The Civic Federation is proposing that if you’re retirement income is less than $50,000; that means anyone solely reliant on Social Security, that would be exempt from state taxation. But if it’s more than $50,000, you would be taxed at the rate of income tax.”

Some of the other recommendations in the report include:

• Reigning in spending to the tune of $1 billion as the governor has proposed

• Having the state teachers’ retirement system absorb the Chicago teachers’ pension fund and consolidate it into one fund

• A constitutional amendment that would change the pension protection clause and only guarantee retirees benefits that have been accrued – not future benefits as the Supreme Court has ruled it does

Msall says all of this requires politicians to abandon decisions that are based on reelection.

“The governor didn’t create these problems, but he is responsible for working with the legislature and moving this state forward. There’s nothing politically attractive to have to finally tell people we need to raise taxes and spend less. It’s a difficult message to deliver. But it’s what the citizens of Illinois who have been paying attention already know.”

According to the report, the state’s backlog of bills could top $25 billion by 2019 If it continues on the course that it’s on. It’s currently around $8 or $9 billion. It’s so bad that even the Libertarian-leaning Illinois Policy Institute won’t say some taxes would have to go up.

But beyond that, they disagree with the road map to restoration.

“We already saw this same failed plan proposed five years ago when we had a record tax increase,” said the Policy Institute’s Ted Dabrowski. “Then, taxpayers gave $31 billion in new taxpayer money to the legislature. Then they failed to reform pensions, failed to pay down unpaid bills, and we had the weakest economic recovery in the nation. To do the same failed plan again would make the problem worse. First, we need economic and budget reforms, and then we should see if there’s any tax and revenue needs.”

Gov. Bruce Rauner’s office offered no comment to the report. He will issue his 2017 budget address next week – despite still no budget agreement for this year.

Follow Paris Schutz on Twitter: @paschutz


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