Increasing revenue, not cutting services and promised benefits. An idea so crazy it just might work.

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As the Illinois General Assembly starts a new session, the level of frustration among my retired teacher friends increases.

As much as those in the corporate Illinois Policy Institute and the Civic Committee want to paint the state’s public pensioners as greedy and fat (Hey. I’m working out four days a week), it just ain’t so.

But to many of my colleagues it seems as if the train is unstoppable and the politicians will pass a COLA cut. It will go to the courts, of course. And even though we think and hope the courts will find that a cut to COLA or other benefits violates the pension protection clause of the Illinois Constitution, who can be sure?

In the meantime the Teacher Retirement System has already sent an email to all TRS members informing us that if the General Assembly passes a pension bomb that impacts our COLA, our benefits will be frozen until the courts decide.

This is what causes frustration and fear among retired teachers and other state employees who planned and budgeted carefully.

We pension activists have repeated the mantra: This is a revenue problem, not a pension problem.

It seemed like it fell on deaf ears.

But maybe not.

Today the influential Springfield Journal Register called on Governor Quinn to avoid the state’s version of the fiscal cliff and called for a graduated income tax.

I reprint the editorial in full:

The numbers in Gov. Pat Quinn’s three-year budget projection are stark and a reminder of Illinois’ own impending fiscal cliff, starting in 2015.

The 2011 income tax increase that raised the individual rate from 3 percent to 5 percent expires at the end of 2014, which is midway through the 2015 fiscal year. That means the budget lawmakers are supposed to pass by June of this year, FY2014, will be the last containing a full year of the increased revenue.

The governor’s budget office projects that state sources of revenue (the corporate and individual income taxes, the sales taxes and other miscellaneous sources) will dip from $29 billion in FY2014, to $27 billion in FY2015 to $24.8 billion in FY2016.

That means nearly $4 billion more in cuts at a time when health-care costs and required pension payments continue to rise and education and health care have already been whacked.

There was chatter at the Statehouse that Quinn would nudge the legislature to make the income tax increase permanent during the recent lame-duck session, but such an effort didn’t materialize after Senate President John Cullerton iced the idea, saying whether to extend the increase is an issue for the 2014 election.

It wouldn’t have to be if Quinn and the legislature decided to tackle reforming the state’s tax system before then.

Illinois’ tax structure is an archaic relic of the economy of 30 years ago. The state sales tax doesn’t tax the growing service sector. It doesn’t effectively tax online sales. Both the sales tax and our flat income tax disproportionately hit the poor and middle class. Two-thirds of the state’s corporations don’t pay the corporate income tax, partly because of special treatment afforded them in the tax code.

Indiana, the panacea for pro-business politicians looking for a model state for other policy reforms, has a modern tax structure. It applies its sales tax to both retirement income and many services that Illinois does not. The Senate Democrats analyzed Indiana’s tax structure and determined that if Illinois had the same framework — before the income tax increase — the state would have $5.6 billion more in revenue. Illinois raised $6 billion to $7 billion by raising its income tax.

For his entire political career, Quinn has been for a progressive income tax, but in his four years as governor, he has never offered a serious proposal to institute one. His 2010 primary opponent, Dan Hynes, did offer a plan, one that would have spared 97 percent of taxpayers a tax increase, taxed some services and raised $5.5 billion in new revenue.

There’s a grand tradition of politicians stealing their opponents’ ideas after the election. Former Republican Gov. Jim Edgar famously swiped Democrat Dawn Clark Netsch’s plan to overhaul school funding but couldn’t get it through the General Assembly.

Quinn ought to say today he won’t seek to extend the temporary income tax increase when it expires.

The governor should dust off Hynes’ plan and make it his own. He should urge legislative Democrats, who now have supermajorities in both chambers and can place a constitutional amendment on the ballot without Republican support, to flex their political muscles. Quinn ought to ask the legislature to send voters an amendment in 2014 that would allow for a progressive income tax and then run alongside it as a permanent budget fix. He ought to couple that with a comprehensive plan to reform the state’s tax structure from top to bottom.

Quinn, who has indicated he plans to run again, continues to have low approval ratings. The sharks are circling. Recent weeks have brought rumblings from Chicago that former White House chief of staff Bill Daley is serious this time about running for the Democratic nomination for governor. Attorney General Lisa Madigan might also jump into the fray.

Quinn could get a jump on both by offering a fresh idea and some hope that Illinois’ fiscal state won’t continue to circle the drain.

The governor talks a lot about the need for bold solutions to problems. This is one. And it happens to be good politics, too.

Can it be that they are listening?

3 thoughts on “Increasing revenue, not cutting services and promised benefits. An idea so crazy it just might work.

  1. …there is a concern that pension fund attorneys who will litigate the constitutionality of reform will not be on par with big law firms that the state will hire (and we should publish …also…if a law passes…Can’t we get a “stay” until the court decides…and perhaps until the US Supreme court decides……also everyone needs to google the charts that list states by there entire tax revenue….Illinois ranks like a Southern state…47th in education and low tax revenues….Disgraceful! Also when Obama mentioned lowering COLA for Social Security ….all of us need to beware

  2. The progressive Institute on Taxation and Economic Policy, and many other analysts, said the $5.5B revenue estimate Hynes claimed (and repeated above) was grossly exaggerated — it would raise only $2.2B and that the budget gap is $13-15B. http://itep.org/itep_reports/2009/10/a-progressive-strategy-for-meeting-illinois-current-and-future-revenue-needs.php However fair a progressive tax may be, it does not come close to solving the problem. Nor is any combination of other tax proposals on the table sufficient.

    1. Your assertions are broad, but when it comes to the pension issue, you seem to be confusing debt with liability. The state’s pension liability is a construction based on arbitrary rules. Interestingly, your own source (http://www.itep.org/pdf/Combine_Quinn_and_Hynes.pdf) supports an increase in income taxes and a graduated income tax (” the reality is that Illinois policymakers would be wise to adopt both of them”).

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