How about Tax Reform? the Most Important Issue in Illinois

Why didn’t past Illinois legislators properly fund the public pension systems? Because it was for their benefit to steal money from public employees and retirees to pay for the state's services than to raise taxes. In effect, the public employees’ pension plans have become everyone’s “personal credit card”; however, now that legislators have amply contributed to the State’s unfunded liabilities, most legislators (and many Illinois businessmen) want the public employees and retirees to pay off that "credit card" or exorbitant service debt bill.

Why might the Civic Committee of the Commercial Club of Chicago be involved in this flagrant theft?  Perhaps if the State can default on its contractual obligations to the public pension systems and shift the financial burden to public employees and retirees, then the State can continue to give even more outrageous tax breaks to wealthy corporations, such as Motorola Mobility, Chrysler, Navistar International, U.S. Cellular, Mitsubishi Motors, Sears and Roebuck, et al. (Bloomberg Business Week, May 20).  Though Tyrone Fahner of the Civic Committee wants us to believe that his goal is to balance the State’s budget through so-called “pension reform,” perhaps his real motive is to redirect monies owed yearly to the public pension plans to private corporations.

Pension reform should not be the focus in Springfield.  The focus should be tax reform, where fairness, long-term revenue stability and a progressive tax rate become the State’s priorities and solutions for the budget crisis.  As determined by the Institute on Taxation and Economic Policy (ITEP, November 2009), the State of Illinois does not tax equitably, and it is in the top 10 of regressive state tax systems where the wealthiest taxpayers do not pay as much of their incomes in taxes as the poorest and middle-income wage earners.   

Consider, for example, that “sales and excise taxes are the most regressive element in most state and local tax systems.  Because sales taxes are levied at a flat-rate, and because spending as a share of income falls as income rises, sales taxes inevitably take a larger share of income from low-and middle-income families than they take from the rich” (ITEP). The State of Illinois is one of the few states that uses a “flat-rate tax.” In other words, the income of the wealthiest people is taxed at the same marginal rate as the poorest wage earners.

The Institute on Taxation and Economic Policy maintains that the top five percent of income earners in Illinois pay the least amount of sales, excise, property, and income taxes because of federal deduction offsets or substantial tax savings (regressive tax loopholes) from itemized deductions, such as capital gains tax breaks and deductions for federal income taxes paid that are coupled with a flat-rate structure.  “[Thus], since the rich are able to save a much larger share of their incomes than middle-income families – and since the poor rarely save at all – the taxes are inherently regressive” (ITEP).

The wealthiest people should pay tax rates commensurate with their incomes, but they do not in Illinois.  The continued attempt to balance the State’s budget by scapegoating public employees' and retirees' pension plans ignores the fact that Illinois has an inequitable tax structure.  A progressive tax reform, or a more effective means of income redistribution where individuals who earn more would pay higher taxes in addition to a low-income tax credit for low-wage earners, would make the State and local taxes fairer and address the most important reform issue in Illinois.

Furthermore, enacting additional structural-spending reforms that do not blatantly “diminish and impair” the public employees’ and retirees' constitutional guarantee to a secure pension (such as restructuring the current pension debt to a lower interest rate, expanding the sales tax to include services, using gaming proceeds, and cutting wasteful spending through “impartial and independent” legislative analysts) would not “impair the obligations of contracts.” 

-Glen Brown