Higher Taxes Not the Answer to Illinois’ Budget Woes

Published August 2, 2005

Every year for nearly two decades, political liberals in Illinois have cried out for a higher and more progressive personal income tax to finance a bigger state budget. Each year they dangle property tax relief as the carrot to appeal to taxpayers smarting over the latest round of property assessments. Thankfully, each year elected officials in Springfield have rejected their call.

In his recent column in the Sun-Times (“Antiquated, flat tax keeps state flat broke,” July 30), Ralph Martire blames Illinois’ “antiquated” flat-rate income tax and sales tax for the state’s budget problems. He argues for complicating the state income tax system by creating multiple higher tax rates, and for expanding the sales tax to include services as well as products.

The assertion that current taxes fail to raise sufficient revenue is laughable. Governor Rod Blagojevich himself identified the source of Illinois’ budget problems shortly after taking office in 2003, when he complained Illinois lawmakers spend money “like drunken sailors.”

The fiscal 2006 budget, approved at the end of May, came in at $55 billion, nearly 50 percent more than the state spent just eight years ago. This spending increase is several times greater than price inflation, wage inflation, personal income growth, or population growth.

Mr. Martire’s “tax swap” would reduce property taxes a little and hike income taxes so much that workers and businesses would be socked with a net $2 billion tax increase. It’s a recipe for economic devastation, a condition Illinois’ reckless tax-and-spend ways already are taking us dangerously close to.

Compare, for example, Illinois’ economy with Iowa’s for the first six months of fiscal 2005. Individual income tax collections in Iowa grew 7.4 percent, in Illinois just 2.9 percent. Corporate income tax collections rose 31.2 percent in Iowa but actually fell 8.2 percent in Illinois. Sales tax collections rose 4.9 percent in Iowa but only 3.1 in Illinois. All this is evidence that Iowa’s economy is surging while Illinois’ is sputtering.

The reason Iowa is giving Illinois a lesson about job creation and income growth has much to do with fiscal policy. Iowa State Rep. Jamie Van Fossen, who chairs the Iowa House Ways and Means Committee, has pointed out that from fiscal 2002 to fiscal 2005, Illinois raised state taxes nearly $1.4 billion, while Iowa reduced taxes a net $60 million. Illinois increased state spending $5.6 billion (a 31 percent increase) while Iowa increased spending only $154 million (an increase of 3.3 percent), according to the National Association of State Budget Officers.

By controlling taxes and spending, Iowa lawmakers have helped boost business investment, create jobs, enable Iowans to spend more money–and increase state revenues. It’s a lesson Illinois lawmakers ought to heed.

Steve Stanek ([email protected]) is managing editor of Budget & Tax News, a national monthly publication of The Heartland Institute in Chicago.