Southtown Star

Report says Illinois a low-taxing state

Friday, October 29, 2010

Illinois is one of the lowest tax states and lowest-spending states in the nation. If you're like the three people I told that to in person, you're laughing.

But the bipartisan Center for Tax and Budget Accountability, an independent think tank, spent six months compiling a study that says that's true.

The primary reason Illinois has an approximately $13 billion budget deficit isn't because of political corruption, the recession or overspending, the report contends.

"As of 2008, the last year for which there is comprehensive state and local tax burden data available, Illinois ranked 44th in total state and local tax burden as a percentage of income," according to the report, titled "Funding Our Future, Reforming Illinois Tax Policy."

Despite ranking fifth in population and 13th in per capita gross domestic product, Illinois ranked 43rd in state spending as a percentage of GDP in 2008. In addition, Illinois ranks near the bottom in state funding for public education, mental health, people with disabilities and on and on.

I told Ralph Martire, director of the Center for Tax and Budget Accountability, that most people wouldn't believe a word in his report, even if they read it and understood every word.

The study concludes that the state needs a 2 percentage point increase in the income tax (from 3 percent to 5 percent), an even-bigger hike in the corporate income tax and an expansion of the sales tax base to prevent a financial catastrophe.

That's all people are going to hear. And people won't like it.

"People who laugh or just reject the idea of a tax hike just don't know the numbers and don't understand them," Martire said. "That's one of the reasons we've done this study."

He does understand why you may feel heavily taxed.

Illinois relies heavily on property and sales taxes to finance the government. Those taxes hit the middle-income and low-income classes the hardest.

Martire believes the candidates for governor, while slinging mud, have completely failed to discuss the most important issue in this campaign: Solving the state's financial mess.
But Republican Bill Brady has claimed he can cut $5 billion from the state budget.

"He talks about cutting a dime on every dollar, but the entire general revenue fund, after the cuts already announced (by Gov. Pat Quinn) in 2010, is $24.9 billion," Martire said. "So even with a dime on every dollar that's only $2.5 billion at best."

In addition, Martire points out there are billions in state programs that really can't be cut, so Brady would be lucky to cut another $1 billion with his plan.

As for Quinn's plan to raise the state income tax to 4 percent, Martire contends that could be the worst solution of all. It wouldn't raise enough money to actually fund state programs or pay off the long-term debt but would make it politically impossible to raise taxes again for decades, he said.

I don't have the expertise to know if all of the figures in this report are correct.

Martire said the study was peer reviewed by David F. Merriman, a professor at the University of Illinois at Chicago; Stephen B. Schnorf, former director of the Illinois Bureau of the Budget who worked for former governors Jim Edgar and George Ryan; Jim Nowlan, a former Republican state legislator and campaign manager for U.S. Senate and presidential campaigns; and Max Sawicky, assistant director of applied research and methods for the U.S. Government Accountability Office, among others.

Still, I don't feel comfortable vouching for the study. I just don't know enough about economics, and statistics can lie. So I called some officials in Indiana, asking for their feedback without actually seeing the study itself.

Mitch Roob, Indiana secretary of commerce, sort of scoffed when I told him that Illinois had lower taxes than his state and referred me to numerous independent reports that indicated the opposite.

Most of them, however, focused on the tax climates for business. Indiana tended to rank near the top 10 in every one and Illinois near the bottom 10.

Indiana Gov. Mitch Daniels, a Republican, has become something of a hero nationally for turning that state's economic deficit around. I asked Roob how he did it.

"The first thing he did, on his first day in office, was get rid of all the state employee unions, AFSCME, by executive order," Roob said. "He just refused to negotiate with them. And all our employees got a 3 percent raise, so they chose to get rid of the unions."

"You have to make tough decisions and it isn't all about cutting, but holding and growing," Roob said. "You can't tax your way into a better economy, and you can't cut your way out of a deficit."

I think the Center for Tax and Budget Accountability report contains a lot of truth about how we got into this economic mess. But what's not in it is the lack of a political will to really change things in this state.

Elected officials here would rather borrow than tax. They would rather spend than cut.

And they would rather do nothing than make unpopular decisions that would solve problems.