Illinois Gov. Rod Blagojevich (D) has proposed the largest tax increase in the state’s history as part of a plan to raise nearly $33 billion in new revenues, a hefty portion of which would fund a universal health care scheme.
The state’s total budgeted spending this fiscal year, ending June 30, is $56 billion. Blagojevich proposes spending $60 billion in the upcoming fiscal year, an increase of more than 7 percent over the current budget.
The governor presented his plan on March 7 in a State of the State address that featured populist anti-business rhetoric and calls for massive new spending programs, including universal health care, billions more dollars for K-12 public education, and billions more for transportation.
“I stand with the people,” Blagojevich said in outlining his plan.
“For decades, it’s been the middle class and the working families of Illinois that have shouldered more and more of the tax burden. And while they’ve paid more, the wealthiest corporations in our state have paid less and less,” Blagojevich said. “The impact of this imbalance weakens our economy, burdens our families, and holds our state back.”
Huge Budget Deficit
The governor’s plan includes $1.5 billion more for K-12 education, with another $500 million for school construction. Blagojevich would also spend $600 million more on colleges and universities.
Blagojevich said his Illinois Covered program would provide state-subsidized health insurance to an estimated 1.4 million residents who lack it. Anyone earning up to four times the poverty level–an individual earning $40,000 or a family of four with an income of $82,000–would be eligible.
The plan also would require all health insurers to issue comprehensive coverage to uninsured residents, regardless of their medical conditions.
Blagojevich proposed the additional spending despite a report issued one week earlier by state Comptroller Daniel Hynes (D). The Hynes report showed Illinois with a current budget deficit of $2.3 billion.
The new revenues would include more than $7 billion from a gross receipts tax on most businesses. The tax would be 1.95 percent on gross receipts for services and 0.85 percent on transactions of goods.
The governor projects about $1 billion more in revenue from the imposition of a payroll tax on employers who do not offer health insurance.
Blagojevich also proposes a long-term lease of the state lottery, which his office estimates will bring in $10 billion. In addition, he would have the state borrow $16 billion to put into the state government pension system. This would come on top of $10.1 billion the state borrowed in 2003 to reduce unfunded pension liabilities.
Critics of the governor say he should not count borrowed money as revenue, because it must be repaid with interest.
Fellow Democrats Skeptical
The governor’s speech received a cool response, even from fellow Democrats.
Rep. Michael Madigan (D-Chicago), Illinois’ powerful House speaker, declined to comment on the plan and had previously voiced serious doubts about leasing the state lottery.
Rep. Jack Franks (D-Woodstock) said the plan does nothing to solve the state’s structural problems and may make them worse.
“My thought as I listened was he is throwing money at problems instead of requiring accountability,” Franks said. “It’s ridiculous. Unless we require agencies to defend each line item, we’ll never get the budget under control. We’ve got to fix the structural deficit before we fix anything else.”
Business Groups Angered
Virtually all the state’s major business organizations openly oppose the plan, particularly the gross receipts tax.
“Governor Rod Blagojevich’s budget plan for state taxpayers is a reckless and irresponsible affront to every employer and worker in Illinois,” said Doug Whitley, president and CEO of the Illinois Chamber of Commerce. “If this plan is approved, Illinois will most certainly lose jobs and businesses to other states for lack of regard for the economic consequences of his political ambitions for big government.”
Gregory Baise, president and CEO of the Illinois Manufacturers Association, appeared on Chicago public television with John Filan, the governor’s budget chief, a few hours after Blagojevich’s speech. The two men agreed on almost nothing.
‘A Fair Tax Plan’
“We think this is a very fair tax plan,” Filan said. He claimed businesses have been shirking their obligations by avoiding paying the state’s corporate income tax.
“Ninety-nine of the Fortune 100 companies do business in Illinois,” Filan said. “Thirty-seven of those companies, who on average sold $1.2 billion of goods in Illinois, did not pay one nickel in Illinois tax.”
Baise responded by saying businesses pay more than $1 billion in state unemployment insurance taxes and numerous other taxes and fees aside from the corporate income tax, and added that businesses fund nearly half of Illinois’ spending.
Though Democrats dominate both chambers of the General Assembly and could pass some of the package without Republican support, a two-thirds vote is needed to sell more bonds. Republican support would be needed to do that, and Republicans seemed in no mood to cooperate.
“This gross receipts tax, the largest in the country, will drive up consumer costs for working families and will hurt the economic viability of small businesses,” said state Rep. Michael Tryon (R-Crystal Lake).
“The governor failed to provide critical details of the health care program, including what type of coverage will be offered and the cost incurred by our families,” Tryon continued. “What we do know is that the new revenue will come out of the pockets of Illinois taxpayers. Expanding health care is a laudable goal but not when it comes at the expense of driving up the price of goods and services our families need and eliminating jobs in Illinois.”
Steve Stanek ([email protected]) is managing editor of Budget & Tax News.