GUEST COLUMN: Fair Tax Amendment an opportunity for Illinois to help get its fiscal house in order

Taxes in Illinois are going to go up. Governor Pritzker is asking Illinois voters to approve changing the state constitution so that the tax increase will be shouldered by the 3% of residents most able to take up that burden: those with incomes of more than $250,000 per year.

Taxes in Illinois must go up because the state’s financial situation is untenable. But how far in the hole is Illinois? It is harder to tell than you might think.

Think tanks like the Illinois Policy Institute emphasize the size of Illinois’ state and local pension liabilities – over $200 billion! – and advocate ending pension programs for public employees in favor of individual retirement accounts. If you are not a public employee, that might sound fine. Pensions are rare in the private sector nowadays – maybe they should be for teachers, police, and firefighters, too.

However, as former Governor Rauner found out when he tried to slash pension benefits in 2015, the Illinois constitution declares public pensions binding contractual obligations “the benefits of which shall not be diminished or impaired.” It is all well and good to talk of cutting benefits, but you can be sure that current and future pensioners will fight it tooth and nail.

What about cutting waste, fraud, and abuse? The Illinois Legislature is famous for its profligacy, right? Not so much, it turns out. In inflation-adjusted terms, the state has cut spending on public services by 23% since 2000. And $9 out of every $10 in the state’s operating budget go to core services: education, health care, human services, and public safety. We could enact budget cuts – and if the Fair Tax amendment does not go though there is a very strong likelihood that will happen – but they will fall largely on the state’s most vulnerable populations.

Illinois also carries a formal debt burden – over $43 billion in bond obligations as of June 2020, with $12 billion of that representing interest payments. The state’s credit rating has approached junk status in recent years, pushing borrowing costs higher. But, as I tell my students, it is important to remember that one person’s debts are another person’s assets. Who owns all that debt that Illinois has issued over the years? Financial institutions like hedge funds and investment banks – and it is in their interest that Illinois remain a fiscal basket case, because that will keep up the return-on-investment for those bonds high.

So how deep is the hole? I propose we turn our attention to the present budget deficit of $5 billion. As is the case in any recession, the coronavirus shutdown has decreased tax revenues and increased the need for state spending. If we are to meet our long term fiscal commitments through a well-considered democratic process, we must first stave off the approaching budget crisis. Without higher taxes, state agencies face cuts of 5% across the board this year, and 10% the next.

“We may often fulfill all the rules of justice by sitting still and doing nothing,” wrote Scottish economist and moral philosopher Adam Smith. Perhaps the state’s fiscal woes do not concern you as long as they do not result in higher taxes. Only a third of Illinoisans reported being personally affected by the 2016-2017 budget impasse. If it is someone else who suffers, why concern yourself?

The Fair Tax Amendment is an opportunity for Illinois to move towards getting its fiscal house in order. If it fails, your taxes may not go up right away – but we’ll all pay for it one way or another.

SAMUEL BARBOUR lives in Ottawa and teaches economics to community college students. He can be reached at tsloup@shawmedia.com.