Statehouse Insider: Study says state tax policy is the real culprit

Monday, November 01, 2010

The Center for Tax and Budget Accountability put out a new study late last week on Illinois’ tax policy and budgets. At nearly 90 pages, with tables, charts and graphs, it is detailed, to say the least.

It’s too bad the study wasn’t released earlier in the campaign season, when it might have had a chance to shape some of the debate about the state’s budget hole and what to do about it.

Make no mistake, the center has long called for a tax hike and continues to do so. But they frame it around the argument of tax reform. They contend that Illinois has a tax system that’s totally out of whack with modern economies, which essentially dooms the state to forever struggling with how to pay its bills. An example is that Illinois, unlike most other states, doesn’t apply the sales tax to most services, even though services are the fastest-growing part of the economy.

The study also raises a few points that run counter to conventional wisdom. It says, for instance, that Medicaid is not bankrupting Illinois state government because state spending on it is basically flat. The amount of federal money coming into the state has increased significantly, however, leading to a much larger overall outlay for the program.

The center also makes the claim that, from 1997 to 2007, “virtually the entire increase in state spending” is due to the state making ever-increasing payments to pension systems. The study doesn’t blame the increase on overly generous benefits, but on the way a 1995 law was crafted to pay off the pension debt, a debt accumulated from previous underfunding of pensions.

Both of these tie into the study’s conclusion that state spending isn’t out of control, but its tax policy is failing.

None of that kind of stuff, of course, fits well into a 30-second campaign ad.