Tough decisions are a part of governing, and Illinois’ $11.5 billion budget shortfall will undoubtedly force many of them. The governor and other advocates of raising taxes as well as spending ignore the fact that these are the same tactics that resulted in the current budget problem.
Instead of creating a leaner and more transparent government, Quinn’s new budget relies on billions of dollars in tax and fee hikes on drivers, incomes, businesses, and tobacco users. His plan takes more money out of the economy where it would otherwise be invested—to start or grow businesses or hire more employees—or spent by consumers.
Raising taxes on income (hurts working families), cigarettes (hurts low-income Illinoisans), and businesses (kills jobs) will open the flood gates for even more jobs and productive residents to leave the state. The state already has the 14th highest tax burden in the nation, which has contributed to its weak GDP and job growth compared with the rest of the nation over the past couple decades.
There are three main problems with the governor’s approach:
The tax increases will burden most heavily low- to moderate-income residents, who are already struggling to meet their basic needs.
The increased personal deduction proposed by the governor will not shield low- and moderate-income earners from the tax hikes. According to a recent report by the Illinois Policy Institute, Illinoisans making $14,000 a year will pay more in taxes under Quinn’s tax hike. An Illinoisan working 40 hours per week at minimum wage ($7.75 per hour) has a yearly income of $16,120 and would pay more in taxes under his plan.
Moreover, increasing the state’s already-high tobacco tax will disproportionally burden low-income families … and it’s an unreliable source of revenue as well. The experience of other states confirms that using this already-narrow and shrinking tax base is an unreliable and regressive means of addressing a budget shortfall.
It will further deter businesses from setting up shop in Illinois, hurt existing businesses, and impede job growth.
Successful business owners are essentially being shoved out of Illinois by the already-high cost of doing business in the state. Quinn’s budget will choke the state’s economy further and lead to more job losses and larger deficits in the future.
Josh Barro, staff economist for the non-partisan Tax Foundation, notes, “Illinois would have the fourth highest state corporate income tax rate in the nation under Gov. Quinn’s plan.” He adds, “This plan would raise the cost of doing business and creating jobs in Illinois.”
Illinois taxpayers would be better served by political leaders who would inject some real fiscal discipline into the budget before causing even more loyal Illinois residents and businesses to abandon the state due to high taxes.
The governor’s proposal ignores the fundamental spending problems that plague the budget and will continue to do so unless steps are taken to foster greater fiscal restraint and more transparency.
The lack of transparency and accountability in Springfield has compounded what is a serious spending problem into an outright budget crisis. Lawmakers have continually refused to implement long-term budget reforms, instead choosing to spend beyond taxpayers’ means.
What can be done?
Among the measure Illinois lawmakers must consider:
* Creating a comprehensive online transparency database and establishing an independent auditing commission would help hold government programs and officials more accountable and reduce wasteful spending and fraud.
* Cutting the myriad “economic development” schemes—such as subsidizing filmmakers to come to Chicago—and privatizing non-core functions of government, as Indiana has done successfully.
* Trimming back overly generous benefits and unsustainable programs that were irresponsibly promised to state workers and taxpayers.
As the documents cited below explain, lower taxes and reduced spending are a better, more sustainable solution to budget deficits than tax increases.
12 Steps Before a Tax Hike
This Chicago Tribune editorial challenges the claim that tax hikes are the only way for Illinois to reduce its budget deficit. These 12 steps are a fiscally responsible and necessary way to shore up the budget without hurting taxpayers.
Tax-and-Spend Plans Would Ruin State Economy
Heartland Institute Research Fellow Steve Stanek explains how dangerous the governor’s tax plan is and what it would mean to Illinois’ economy.
Research & Commentary: The Best and Worst Ways to Eliminate a Budget Deficit
Heartland’s budget and tax legislative specialist, John Nothdurft, takes a look at some of the best and worst ways states are using to trim their budget deficits.
Will My Family Pay Higher Taxes Under Governor Quinn’s Plan?
According to the Illinois Policy Institute, individuals making more than $14,000 per year and families of four making more than $56,000 a year would pay more in taxes under Quinn’s proposed income tax hike.
Illinois’ “Business-Friendliness” Ranking Would Decline Sharply Under Governor’s Plan
The non-partisan Tax Foundation looks at how the proposed tax hikes would negatively affect the state’s “business friendliness” rankings.
Ten Principles of State Fiscal Policy
This booklet provides policymakers and civic and business leaders with a highly condensed yet easy-to-read guide to state fiscal policy matters. It presents the 10 most important principles of sound fiscal policy, from “Above all else: Keep taxes low” to “Protect state employees from politics.”
Illinois Piglet Book
The 2008 Illinois Piglet Book takes aim at $686 million in wasteful spending that can be eliminated from the budget. It suggests, “before the state asks for one more dollar from hardworking Illinois residents, underlying issues of waste, fraud, and abuse must be addressed.”
Total State Revenues Up for Sixth Year in a Row
The Illinois Taxpayer Education Foundation found that for the sixth year in a row, total Illinois state revenue is significantly up from the previous year. State revenue has increased $5.1 billion over the past two years, with $2.3 billion of that coming from income taxes, even though there had been no increase in the tax rate.
Nothing in this document is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit The Heartland Institute’s Web site at http://heartland.org and PolicyBot, Heartland’s free online research database.
If you have any questions about this issue or The Heartland Institute, contact Heartland Legislative Specialist John Nothdurft at 312/377-4000 or [email protected].