Tuesday, July 25, 2017

Illinois Democrats Choose More Decline and So Hike Taxes

Illinois Democrats, with the help of a few weak-kneed Republicans pressured and duped into joining them, just overrode the Republican governor’s veto to push through a massive, permanent income tax hike (for individuals, a 32% increase up to a shade shy of 5%).  Not many years ago, Democrats passed a temporary four-year massive (67% for individuals) income tax hike that they said would right the foundering ship that is Illinois finances.  To no one’s surprise, after the period of higher taxes Illinois was in a deeper financial hole than it was before all that additional tax revenue because the state’s profligate spending was never reduced.  Illinois doesn’t have a revenue problem, it has a spending problem.  The Democrat party formula is to spend recklessly on their constituency groups, and when the financial meltdown inevitable occurs pressure enough dim-witted Republicans into supporting a tax hike (Think of the kids!  What about the schools!); then repeat the cycle all over again. 

In the last 10-15 year, Illinois’ spending has zoomed while its population has shrunk.  Big dollars go to Medicaid and other social services that keeps dependents voting Democrat, and big dollars also go to current and retired government workers.  Illinois state workers are the highest paid, adjusted for cost-of-living, of any state in the nation, even before generous retirement benefits kick in.  (In 2016, there were 17,638 retired state and local workers whose annual pensions were over $99,000, with 15 over $348,000!)  And Illinois has far more units of government than any other state, and all of those townships and forest preserve districts and library boards and water reclamation districts have employees and expenses.  After all that spending, there’s not much cash left over for services for the regular people, otherwise known as the taxpayers.            

And those taxpayers are voting with their feet, as Illinois and Cook County (home of Chicago) lead the nation in population loss.  The Illinois tax base is eroding fast, and yet the Democrats have chosen to raise taxes rather than cut spending.  Higher taxes without spending reform will just accelerate the population exodus and the state’s financial decline. 

I have no sense of what the ultimate resolution will be for Illinois, which is arguably already in the direst financial straits of all the states even before this tax hike.  Like the City of Chicago and the Chicago Public Schools System, Illinois is functionally bankrupt.  I blame chronic, excessive spending that increasingly benefits Democrat party constituencies rather than state residents as a whole, combined with chronic underfunding of pensions that appear overly-generous and based on increasingly over-market salaries.  Throw in the usual fraud and abuse, like pension-spiking, to the mix.  Although the nominal rate of the Illinois state income tax may seem not particularly high even at 5%, given the very high property and other taxes some analysts say Illinois residents have the highest overall tax burden in the United States.  Overspending and mal-spending continue seemingly unabated, and real pension reform remains a pipedream.

Increasingly, the political divide in Illinois is between those who benefit from the state and local government spending largesse, like current public employees, government pensioners, and welfare recipients, and those who foot the bill.  While the beneficiaries feed at the trough the bill-payers are getting fleeced, and increasingly they’re leaving for better pastures. 

R Balsamo 

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