Plan to Fix ‘Structural Deficit’ Will Do No Such Thing

Published January 1, 2007

Make no mistake about it. Come spring session, a massive tax hike is going to be on the table in the General Assembly. It will be billed as “education funding reform.” It might even be called a “tax swap.” But, if it is anything like the failed House Bill 750, it will be neither.

Yet, unless an effective alternative is proposed, as one state senator has said, “House Bill 750 or something very similar will be shoved down our throats by veto-proof, Chicago-dominated majorities in the Illinois Senate and House with at least acquiescence from an Illinois Federation of Teachers-endorsed, Chicago-based governor within the next eight months.”

Readers of this editorial page have probably heard of HB 750. It was designed by the Center for Tax and Budget Accountability, whose executive director, Ralph Martire, is a regular contributor to the State Journal-Register. He has for months promoted the legislation that he helped author.

Over that period, Martire has billed his tax hike as a “tax swap.” Last week, he finally abandoned this charade, in his column “Business groups face facts – a tax hike is needed.”

Recently, the Civic Committee of the Commercial Club in Chicago estimated that Illinois’ deficit is roughly $106 billion and new tax revenues are needed to address the impending crisis. They believe a tax increase is needed to address the impending shortfall in government income.

Martire agreed. Furthermore, he would have us believe the crisis stems from a tax structure that generates revenues insufficient to address the state’s deficits and to provide basic public services.

This so-called “structural deficit” will bankrupt the state, according to Martire, and an income tax increase (via HB 750) is the only way to prevent it.

Part of his argument, though, was the preposterous claim that “Cutting spending won’t solve the problem” and that “the ongoing state deficits are caused primarily by revenue shortcomings, not wasteful or profligate spending.” As proof, he cites Illinois as a “low-spending (42nd) and low-tax (48th) state, despite being fifth most populous.”

At the very least, Martire’s claim deserves a significant qualification. According to the Tax Foundation, Illinois ranks 36th in the nation in state government spending. But once local government spending is factored in, we climb all the way to 21st.

As for our tax burden, Census Bureau data tell us Illinois has the 13th highest per capita state and local tax burden in the country. As a percentage of personal income, Illinois’ taxes are the 19th highest, up from 32nd in 2000!

Illinois skyrocketing tax burden is primarily result of local property and sales tax hikes, since the state income and sales tax rates have not changed in years. Martire’s proposal would have accelerated this already disturbing trend.

HB 750 was designed to offer nominal property tax relief in exchange for substantial income and sales tax increases. The income tax rate would have increased by 67 percent while property taxes, if lowered at all, would only decrease by 20 percent. Dollar for dollar, HB 750 would have raised more than three times as much in new tax revenue ($9.1 billion) as it provided in property tax relief ($2.7 billion).

Moreover, Martire and other tax hike supporters have never made it clear how increasing tax revenues will solve our “structural deficit.” Illinois, like all states and many private companies, faces serious challenges securing its pension system for future generations because the basic structure is unsustainable. But HB 750 proposed nothing to change this structure.

Similarly, projected Medicaid costs pose serious challenges to the state budget. Illinois has refused to pass even basic reforms, like moving all enrollees to managed care, to make those costs more reasonable. Other states have actually taken action to address their Medicaid financing. Did HB 750 propose any “structural” changes to Medicaid? No.

Finally, HB 750 was pushed, above all else, as an answer to our state’s school funding woes. But here again the bill failed to offer any structural changes. It was supposed to achieve “equity” in school funding. It would have done no such thing. For Chicago – which would have received a lion’s share of new money – HB 750 did nothing to ensure the money would have distributed equitably within the city’s limits.

Simply, there were no “structural”changes in HB 750. There was no guarantee that its “property tax relief” would have been permanent. There were no protections against continued raiding of the state pension system, no changes to Medicaid, no reforms of public education.

And so, come spring, we should leave HB 750 where it belongs – in Illinois’ political dustbin – and begin talking about real reform.

Collin Hitt is director of education policy and reform at the Illinois Policy Institute. Michael Van Winkle is a media affairs specialist at the Heartland Institute. They can be reached at [email protected] and [email protected], respectively. This article originally appeared in the State Journal-Register ( on January 1, 2007.