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Springfield rally missed the point

Thursday, April 22, 2010

To tax or not to tax. That seems always to be the question -- particularly in Illinois.

The array of opinions and arguments about whether to raise taxes is staggering. At one end of the spectrum are the redistributionist folks who simply believe that Illinois should tax its citizens more -- like New York and California. Not quite so far to that end of the spectrum are the folks who care more about getting more money for purposes they favor. Way at the other end of the spectrum are those who would not raise taxes under any circumstances. And there are dozens of stops along the way.

So -- faced with the snowstorm of argument and sound-bites -- what's a middle-of-the-road voter in either party to do?

Why not think about this the way you would your family budget? In a crunch, you cut your expenditures even though the cuts impact your life style and your comforts. Cutting costs is the place to start -- whether you are a family, or a family business, or a major corporation. If you are a company, maybe you have to let some people go -- or reduce salaries, or benefits. Or you freeze the defined-benefit pension program and shift over to a defined-contribution program that costs less.

But state and municipal government are fundamentally different. The biggest difference is that states and cities do not live in the same competitive pressure-cooker that families live in and businesses work in. And the elected officials who run our state and cities are not judged the way business people are judged. Our families and companies are forced to make hard choices; if they don't balance their budgets, they are out of business. By contrast, in state and city politics, officials are rewarded for avoiding hard choices.

Our governors, our state legislators and our mayors are more worried about staying popular -- about getting re-elected -- about not irritating the street demonstrators who blocked the streets and exits from the Statehouse in Springfield this week. If the hard choices aren't made, that's not so bad: it means somebody wasn't made angry. So we neither reform nor cut. And we continue to borrow.

This is why Illinois now has about $130 billion (that's not a typo) of retirement-related obligations today. The pro-tax crowd and the anti-tax crowd are united in this respect. They don't worry about the mushrooming debt. The pro-tax crowd wouldn't pay down the debt anyway; they would just spend the new money. And the anti-tax crowd thinks anything -- including more borrowing -- is better than raising taxes.

So, what can the middle-of the-road voters in both parties do? They can say to elected officials and candidates: Balance the budgets! Sure it will make somebody mad. But just as we've had to reduce our family and business spending, you have to cut the costs of government and stop the borrowing. Reforms and cuts come first. Taxes must be the last resort. Otherwise, the needed reforms and cuts will be bypassed.

In Illinois we have a real annual state budget deficit in the range of $14-15 billion. We spend $3 for every $2 we take in. A governor with a meat-ax, backed by legislators who cared about the State's continuing viability, could cut perhaps $5 billion per year -- maybe more. Pension reform as to current employees would reduce unfunded obligations by about $25 billion.

The way to force hard choices is to stop the borrowing. Borrowing has to be repaid, with interest. Borrowing is a tax. It's just a tax on the future -- not the present.