In tough fiscal bind, Illinois prepares steep tax increases

[cowcommander]

Source: Washington Post

After years of papering over severe budget shortfalls, Illinois lawmakers Friday were closing in on a plan to raise the state income tax by 75 percent and refinance roughly $8.5 billion in debt in an effort to stabilize the state's finances. The deal, still being hashed out between Gov. Pat Quinn (D) and Democratic legislative leaders, also would raise the state's corporate income tax and increase the cigarette tax by $1 a pack. Lawmakers also are discussing reviving a proposal to sell more than $3.75 billion in bonds to plug part of the gaping hole in the state's pension fund.

That leaders would contemplate raising the income tax rate from 3 percent to 5.25 percent and simultaneously take on new debt speaks to an increasingly desperate financial situation. But while experts call Illinois's plight the worst in the nation, a similar scenario is playing out in many states that are grappling with the perils of air-brushing structural budget problems rather than implementing difficult tax increases or service cuts.

"These are the hard choices that have to be made. You've got to cut expenses and you got to raise taxes. You just have to," said Matt Dalton, chief executive of Belle Haven Investments, a $600 million fund that stopped buying Illinois bonds last June because of the state's mounting fiscal problems. "What Illinois is contemplating is a good thing. This is what needs to happen not just in Illinois but across the country."



Read more: http://www.washingtonpost.com/wp-dyn/content/article/2011/01/07/AR2011010706530.html

[rfranklin]

1. Progressive taxation is needed not across the board...

Flat taxes hurt those least able to spare the money.

[bbinacan]

2. I'm sure glad

I don't live there.

[jtuck004]

8. Maybe you do. Maybe most of us do, or close enough.

This article showing the majority of states as insolvent was from February - and all of them are worse off now than they were.

Slowly but surely they are all going to fall off a cliff in one way or another while good jobs are being replaced by no jobs
or jobs that pay less. We have huge unemployment, still propped up by federal spending, and of those who are working 1 in 3 make $20,000 a year or less. We cannot continue to run the country like we were, and people cannot live the lifestyle they were used to.

So they will raise taxes, which removes money from the economy. That makes things worse, and more people lose jobs

While Wall Street laughs, and prepares for the next round...

[bbinacan]

10. I'm being transferred to TX.

in March. No state income tax there. :woohoo:

[neverforget]

13. Texas has a $25 billion deficit

http://www.nytimes.com/2011/01/07/opinion/07krugman.html

[bbinacan]

15. Only $25 billion?

That's tip money in today's world.

[neverforget]

17. It's not to the people who are affected by it. But at least you don't have to pay

income tax. bully for you.

[rayofreason]

25. Texas operates...

...on a 2-year budget cycle, so that shortfall is spread out over 2 years.

And Texas does not have budget deficit. Each cycle expenses are set to match revenues. Higher ed is getting a hit, but state support is already not too large (14% of the UT Austin budget), so even a 20% cut in state funds can be absorbed (but not easily). The franchise tax (1% on businesses with > $1million in revenue) will go up as the exemption goes down to $600K. And there is a $10 billion stash from when times were good that the state can draw on.

Illinois is in a rather different position.

[jtuck004]

14. I live in WA. We have no state income tax either. We are dealing with an $8 billion dollar

shortfall in the budget. State universities are taking it on the chin, and the proposed budget for 2011 drops about 100,000 kids and others from the state basic health insurance plan.

Texas is reportedly going to have to deal with a $20 billion or so shortfall in the Spring.

There is no place that is not affected by our current and ongoing financial crisis.

But I wish you the best...

[bbinacan]

16. Thanks. n/t

[christx30]

20. I've lived in Texas all of my life

Love it here. You'll barely notice the 8.25% sales tax. Where in the state are you going to be?

[Habitual Candor]

21. The No State Tax Myth

I am loving Texas as well but besides the high sales tax there is also high property taxes, which pays for the schools among other things. States will get the needed revenue somewhere, but one less set of tax forms is nice.

[bbinacan]

27. Probably Abilene. n/t

[Skink]

24. No state income tax for now.

[Skittles]

26. LOL

lots of other fees are a lot higher here

[subterranean]

18. Raising taxes does not necessarily remove money from the economy.

It removes money from people's pockets. But if used on things like infrastructure, education, health care and other public services, taxes are recycled back into the economy.

[jtuck004]

19. Sort of. Try spending all your state money on those things, and

see if what kind of return it nets.

It will eventually be a zero sum game, unless there is significant input from the private sector jobs that exist on the other side of that bridge we built, or come about from the training at the school (which really isn't working so well lately). Health care doesn't really give us much of a return as it keeps life going, except for where wealth is created by research and development of new methods. And whether the "public services" are a great investment has to be looked at on a case-by-case basis.

Don't think I don't see the value in much of this, but if we were to take these surveys which show $1.63 in return for every dollar paid out in food stamps, public works, etc., literally, we should just fund food stamps for everyone and no one would have to work again. That's obviously not true.

What it really means is that the public spending allows the private sector to generate more, which, if used for workers instead of paying the CEO 1700 times the pay of the average worker gives us a successful economy.

As opposed to what we are doing today.

[christx30]

22. F'ing THANK YOU!

I've been trying to say that for years (albiet not as well as you did). the government needs to enable to private sector to create jobs, and not hamper them. Infrastructure is great. But if you double taxes and a business can't make a profit in that area and leaves (which a lot do), then you're not going to get that tax money, or the tax money form the people that are now laid off.

[jtuck004]

23. People need to be re-educated as to what taxes do for them,

and how that infrastructure they pay for helps business.

On the other hand, when 30 million people lose their jobs or can't work enough hours to make ends meet, and 1 out of 3 workers are making $20K/yr or less, there is little wisdom in trying to prop up a structure that was built on much higher returns.

Take someone who was paying $1800 a year out of their $60K job (.03). They lose their job and get a $17K a year job at Dollar General, and now their taxes are $893 (.0525). They have lost 2/3 of their income, can barely (or not) make a house payment, the money they used to pay in for public services is halved, 50 million now have no health care, and they can't buy nearly what they used to - yet their taxes have only decreased by half, and now the bite hurts A LOT more.

It is incredibly short-sighted for a state to increase income taxes to try and prop up their existing structure. There is nothing to support an increase in jobs and demand at the level we would need to see 5% unemployment in anything less than 20 years - that's 2031! And that's with relatively lower wage service sector and home health care jobs). The most likely scenario is that living standards continue to deteriorate, food becomes more expensive and harder to get, gas gets pricier, or maybe the pension fund problem rears its ugly head. So the states are going to find themselves short again in just a few years, and with a population that is getting a little perturbed. That could be sooner than anyone thinks if housing takes the second tumble that might be coming about mid-2011. And that carries with it all sorts of potential changes, potentially a series of landslide victories for people who will cut the heart out of public employment, and potentially make changes that affect the plans people have been living towards for decades.

Businesses aren't stupid. They may be sitting on a couple trillion dollars, and although it might be patriotic and good for their long-term survival, they see it as foolish to use it to create jobs in this economy. It would just flow to China until they had no more money. Check out IPO's for new companies - China raised 50% more capital than we did last year in new IPO's. Business is investing overseas, and making much more money than here. China is even outsourcing work they used to do to Vietnam and other countries.

What we desperately need is DEMAND, and potentiall a stiff, perhaps temporary, cut in expenditures, which probably means military and very likely cuts in wages or personnel in public jobs, dropping the health insurance industry and moving everyone to medicare. (I find it ironic to hear public employees calling for cuts in the military - that means those people would be fired - and yet arguing against cuts in state and federal civilian jobs). We have lived on debt that masked the decrease in good jobs for the past 40 years, have lost the pool that used to fund all this, and have no money to buy sufficient quantities of "stuff" to energize the economy.

The federal government, the ones who manufacture the money, then needs to be injecting funds in a massive way - ala WPA/CCC, updated for this century - employ about 15 million people at $30K year, and set people to work on 21st century projects. At the same time we need to increase taxes on the wealthy. Unfortunately, partly due to hundreds upon hundreds of millions of dollars spent on campaigns, lobbying, and jobs in the government being taken by former and soon-to-be employees of the investment banks, Wall Street controls the purse strings and policies, and so far they seem reluctant to be anything but their typical avaricious selves. And until enough people get the guts to walk away from all that and stand up against them, they will continue to control it.

Doesn't bode well for the future.

Thank you for the comment.

[Broderick]

3. They need

to take care of public servants and make sure they take care of the promises they made to them. If taxes bring the income to take care of pensions and such so be it. They ought balance the budget and pay the contracts, obligations, and suppliers. Illinois is a great state and just because they raise taxes doesn't mean people will leave or business will leave. Tax those that get way tooooo much from the business this state does and pay your obligations Illinois.

[DCKit]

4. They're going to cause a refugee problem for the neighboring states. nt

[Drale]

5. the thing is

We still will have lower taxes then alot of the nation. The former governor did just what the GOP always does, spent as much money as he wanted without knowing how to pay for it.

[BadgerKid]

6. Map: 2009 state income tax rates

[AC_Mem]

7. I'm in a suburb of Memphis TN

We have no state income tax, but a 9.25% sales tax.

I think they should lower the sales tax a little and implement a state income tax.

But we are mostly run by the GOP, so we will probably see education and services cut instead.

sigh.

[rpannier]

9. My state taxes are going up from 3%

It's the largest tax hike in history - Homer Simpson

[Thav]

11. Correct me if I'm wrong

But I thought the ONLY way to balance the budget was to cut spending and pass tax breaks.

If they cut the state income tax to 0%, that'll balance the budget overnight, right?

:sarcasm:

[Marthe48]

12. Why not STOP spending money on killing people in Iraq

and Afghanistan? When we weren't illegally invading other countries, we had money for local government and so on. But the insane bastards who got us into those countries would rather spend all the tax money on killing people rather than supporting the internal structure that used to make America great. The jobs are gone so the only option an able-bodied person has to to join the military. So we have constant war, constant death, and absolutely no comfort or ease. I know when the country went down the tubes, I just wonder how much longer we're going to slide???