By Ralph Martire
Nobody likes taxes. But everybody should be thankful Illinois increased its income taxes in 2011.
Here’s why. Illinois lawmakers just enacted a General Fund budget for fiscal 2014 that starts July 1. Even a cursory review of that budget makes three things abundantly clear. First, a structural imbalance between revenue growth on one hand and service-cost growth on the other continue to plague state government.
Overall, the fiscal 2014 budget calls for $9 out of $10 dedicated to education, health care, social services and public safety — a total of $24.5 billion in spending on services. Of that amount, however, anywhere from $8.35 billion to $8.9 billion, or 34 to 36 percent, will be deficit spending. Which is nothing new. According to the state comptroller’s office, this will be the 22nd consecutive year in which Illinois has run a General Fund deficit.
Second, spending on services doesn’t drive these ongoing fiscal problems, but flawed tax policy does. Indeed, overall service spending is scheduled to be $214 million less in fiscal 2014 than the previous year, the fourth consecutive year spending on services will be reduced in nominal dollars. In fact, after adjusting for inflation, service spending will be 28 percent less in real terms in fiscal 2014 than in fiscal 2000. Again, this is nothing new.
Illinois historically has been a low-spending state, ranking 32nd in General Fund spending as a percentage of GDP, despite having the fifth-largest population and economy of any state and the 17th-greatest GDP per capita. Yet state tax policy is so flawed that even when spending is flat or reduced in real terms over time, deficits nonetheless materialize because of insufficient revenue growth.