Friday, September 30, 2011

Defined-Benefit Pension Plan v. Defined-Contribution Savings Plan

Defined-Benefit Pension Plan:

 Your defined-benefit pension plan is more cost efficient than the defined-contribution savings plan
 Your defined-benefit pension plan offers predictable, guaranteed monthly benefits for life
 Funds are invested by professional asset managers in a diversified portfolio that follows long-term investment strategies
 The large-pooled assets reduce asset management and miscellaneous fees
 Your defined-benefit pension plan provides spousal (survivor) financial benefits
 Your defined-benefit pension plan provides disability benefits
 The state is responsible for funding, investment, inflationary and longevity risks
 Your defined-benefit pension plan is a more effective protection than the defined-contribution savings plan
 Your defined-benefit pension plan provides you with self-sufficiency in retirement; it is associated with far fewer households that experience food privation, shelter adversity and health care hardship
 Your defined-benefit pension plan is less expensive for taxpayers than Social Security – a reason why legislators, et al had negotiated for Illinois teachers to not pay into Social Security
 Your defined-benefit pension plan has an economic impact of over $4 billion on Illinois; the effect on Gross Domestic Product is $2.38 billion; jobs that are created: 30,448 (Teachers Retirement System of Illinois, TRS)
 The Teachers Retirement System of Illinois is the 39th largest in the U.S. with 378,288 members (TRS)
 The average investment returns for TRS: 9.3% (over 30 years), 8.8% (over 25 years), 8.3% (over 20 years) (TRS)
 Defined-benefit pension plans contribute over $100 billion to annual local, state, and federal revenue in the U.S. and provide capital to financial markets (National Institute on Retirement Security, NIRS)

Defined-Contribution Savings Plan (401k):

 With a defined-contribution savings plan (401k, 403b, 457), only your contributions are defined
 A defined-contribution savings plan shifts all the responsibilities and all of the risk from the employer to you (unless negotiated otherwise); thus, your benefit is not guaranteed for life
 Your benefit is based upon individual investment earnings
 You assume all funding, investment, inflationary and longevity risks
 A defined-contribution savings plan does not have the pooled investments, professional asset managers, and shared administrative costs that a defined-benefit pension plan provides
 There are no survivor or disability benefits and guarantees
 Though you bear no portability risks, accounts are not always rolled over when you change jobs
 Your employer (state) will have to bear the administrative costs of both defined-benefit pension and defined-contribution savings plans when you switch over
 Though not your problem, “payments to amortize unfunded liabilities for the defined-benefit pension plan may be accelerated” (NIRS)
 The Governmental Accounting Standards Board “requires [an] acceleration of unfunded liability payments when the defined-benefit pension plan is closed to be recognized on financial statements” (NIRS)
 When changing from a defined-benefit pension plan to a defined-contribution savings plan, “new members do not start with any unfunded obligation” (NIRS)
 “Projected defined-benefit savings contributions for new members are worth more than the projected defined-benefit pension costs for those members” (NIRS)
 “No unfunded obligations [liabilities] for existing members are reduced when new members go into a defined-contribution savings plan” (NIRS)
 “The loss of new members make it difficult to finance the unfunded obligations of the defined-benefit pension plan” (NIRS)

Sources: the National Institute on Retirement Security (NIRS), the Teachers Retirement System of Illinois

Thursday, September 29, 2011

Our Indifference about "Pension Reform" or Breaking a Contract

We define indifference as a lack of interest, an unimportance or insensibility. As the Nobel Peace Prize winner Elie Wiesel states: “[It] is more dangerous than anger and hatred.” We might add that indifference courts a complicit relationship with political and social injustices and that, conversely, these injustices owe their success and power to indifference.

We know the cousins of indifference are weakness and fear; we know if we choose to be indifferent, we also relinquish our constitutional rights and benefits. So how do we asphyxiate our apathy and abnegation? How do we disable them? Is one possible answer to such questions our need to become responsible for not only our future but for the future of others?

Political and social indifference is an overwhelming enigma. Nevertheless, each one of us can make a difference. The road to caring about our future begins with our comprehension of any legislative injustice that will affect retired and current teachers and other public employees in Illinois. It begins with our compassion and empathy for those citizens who will suffer the consequences of an unconstitutional prejudicial theft.

Our most effective responses to this possibility remain our concerted actions to protect and secure our constitutional rights and benefits; to educate our colleagues, friends and neighbors about this attempted assault on our contracts; and to un-elect the liars and thieves in the Illinois General Assembly who support "pension reform," instead of addressing the state's revenue and pension debt problems.

"Indifference is never creative... Indifference elicits no response. Indifference is not a response. Indifference is not a beginning, it is an end. And, therefore, indifference is always the friend of the enemy, for it benefits the aggressor -- never his victim, whose pain is magnified when he or she feels forgotten" (Wiesel, The Perils of Indifference).

-Glen Brown

Sunday, September 25, 2011

Dialogue between a young, tea-party member and an old man

Recently, I received an email from a young man. In the Subject Heading, it read: "Still Think Governor Walker Is Bad for Wisconsin? Good Stuff Is Happening in Wisconsin!"

A list followed in the email regarding the "good stuff [that] is happening in Wisconsin" such as saving large amounts of money by cutting funds to Wisconsin’s public school districts, enacting merit-pay systems and collective bargaining reforms for public school teachers, decreasing "school" property taxes, eliminating 1,000 government jobs… You get the idea.

I wrote the tea-party member back, using the typical liberal response about neo-conservatism and its perpetuation of the "corporatists" crusade; he instantly replied:

"With all due respect, I think you are losing your marbles. You started your article with words such as "neo" and "blitzkrieg", yet you quote and resource the likes of Naomi Klein and Robert Reich. These are two socialists who would love to see Marxism in this country. They remind me of an earlier socialist group, the national socialist party, or NAZI for short. You may be getting caught up in their propaganda and their mastery of manipulation."

My reply:

Most people who call others "socialists" usually do not understand the concept of socialism; they vaguely understand even the fallacious over-simplifications of most theories that they hear reiterated typically in scare-mongering political debates and from right-wing media talk-show hosts. These people that use the term socialism use it as an evocative, connotative, name-calling device to frighten others primarily so they can capitalize on and perpetuate their audience’s profound fears and ignorance. This is a means of "propaganda" and "manipulation" of the populace.

For the record, I am not a socialist or a communist; I am not a fascist either; moreover, I do not believe in monarchs and aristocracies; I do not believe in theocracies and the "divine right of kings." I am not a utilitarian; I am not part of the U.S. plutocracy, (nor would I ever want to be); I am definitely not a "tea partier" (a person who utters sanctimonious platitudes about abstract concepts without intelligent understanding of the ideas or our country's complex problems)! Furthermore, I do not believe that an ideal democracy or republic can exist, for often times the majority rule (a form of tyranny in itself) is morally wrong and the minority is right. I believe in an ethical and moral capitalism but that, of course, is an oxymoron.

I have little faith in man and his political, economic and religious beliefs and objectives, for they often beget hypocrisy, greed, genocide, terrorism, slavery, oppression, racism and ignorance. I believe what Alexis de Tocqueville pointed out more than 150 years ago: that American democracy will never reconcile the conflicting demands of individual freedom and its civil liberties. I believe that Jefferson and Madison (who were also both members of the "privileged" class at that time) would not approve of the today's "so-called" democracy, though they would recognize that today’s American plutocracy, with its vast wealth and power, has created horrible inequalities and injustices in this country and abroad.

He replied succinctly:

"What tea party are you referring to? The one seen on liberal TV networks? The tea party I know wants the government out of our way. The only un-intelligent idea this tea partier has is to let man rule himself. I guess that's too difficult for some folk!"

My reply:

I am not referring to the tea-party "clowns" who are analyzed on liberal TV networks. I am referring to some of the idiotic ideas that have actually spewed from the mouths of the "so-called" leaders of this band of morons who follow Ayn Rand's fictional ideology (oops! please forgive my name-calling): Bachmann, Palin, Beck, Hannity, Paul, Meckler, etc., those who rant on Fox News and its ilk.

It fascinates me that you want "the government out of [your] way?" Let me ask you few questions regarding "the only unintelligent idea this tea partier has is to let man rule himself": Do you want to collect social security and Medicare when you're an old man? Would you collect welfare if you lost your job right now? Do you think you will need no government assistance in the future, such as Social Security and Medicare (because you have saved enough money for your retirement)? Would $2 million be enough for 25 to 30 years of retirement?

Do you visit public libraries, museums, and parks? Do you drive on public highways and streets? Do you walk on sidewalks? Do you discard your garbage at a landfill once a week? Do you send your children to public schools? Did you go to public schools? Do you want firemen to come to your home when it's burning? Do you want policemen to come to your home when it's burglarized? Do you want safety inspections of the food your family eats and the water your family drinks? Do you want a postal service? Do you want prisons for felons? Do you want a Veterans Affairs Department or a Hazardous Materials Safety Administration, or the Department of Justice and the court systems? How about a Department of Defense? Do you want a navy, army, Marine Corps, and air force to protect you from foreign invasions? How about the National Guard? How about the Nuclear Security Administration and NASA…? Sure, let's get rid of our officious government and privatized public services!

By the way, there are literary works, historical references, and philosophical treatises that analyze the impossibility of the notion that "man [can] rule himself." Do you understand the ramifications of what tea-party people say, particularly about eliminating government and establishing self-rule?

He replied:

"That's absurd, we need a government. The tea party started at the end of Bush/beginning of Obama (the over spending of all the states as well). How about spending less than the amount taken in? How about social security keeping pace with the higher average? Instead, we elect morons like Quinn who raises my income tax to fund the past, not even the future. Then (expletive deleted) [he] needs more so he raises the tolls, AGAIN! Instead of cutting useless programs, he acts like a crack cocaine addict who needs money for his habit and will steal to get it! Go ahead and compare Quinn to Walker and you will see the truth."

My final reply:

Wasn't it Rick Santelli who started the so-called "Tea Party," which is funded by the billionaire Koch Brothers and other despicable capitalists? How ironic is it that Santelli didn't rant about the major U.S. mortgage companies and major banks that brought down the economy to the brink of disaster during 2007-09. How ironic is it that Santelli's Tea Party members oppose government intervention in the private sector (Big Bank regulations...) and taxation. How ironic is it that OUR tax money bailed out the so-called Big Banks that "couldn't fail." In regard to your statement, "How about spending less than the amount taken in?": That’s called saving, isn’t it? However, isn’t that contrary to the American way of living, via credit card debt? How about raising taxes on the filthy rich? 

Sunday, September 18, 2011

Dispatching a Stalwart Teacher

From the journal of a Civic Committee member in the not-too-distant future
(…with humble apologies to George Orwell’s “Shooting an Elephant”)

I was living in Springfield, Illinois during the mid 2020’s. The Teachers’ Retirement System of Illinois was already defunct for a few years, and the Civic Committee had sent me to squelch any potential uprisings.

Thinking about it now, I realize how much teachers had detested the Committee’s presence at the legislative sessions several years ago. The helplessness of teachers in the defense of their defined-benefit plan was quite obvious to all stakeholders, especially the Committee. After the pension reform bill was passed, CEO vultures from the Committee and the Civic Federation moved quickly in to carve up the teachers’ retirement melon by establishing spheres of influence over the profits they would reap from enrollment in the Tier Three “defined-contribution” option, the beginning of the final demise of the defined-benefit plan in Illinois.

In 2011, a few retired teachers had created a semblance of solidarity by forming a group called the Illinois Stalwart Pension Advocates (ISPA), which vehemently opposed exploitation by the plutocrats that attacked their pensions. The ISPA was essentially a small faction that emerged out of the now defunct Illinois Education Association (IEA). The ISPA was largely made up of retired activists, two “Roamin’ Dudes” (so named by an X-legislator), and a few young teachers who lived in the Chicago land area.

Dissident retirees and teachers employed the revolutionary method of meeting, calling, and emailing legislators (or sending postcards to them) associated with the “We Are One” coalition of 2011, which included the IEA, IFT, AFSCME, AFL-CIO, Police and Firemen. Although the Committee and its media organizations continued to successfully manipulate the populace into hysterical, pension envy or Zavast – the other destructive force against the public pensions’ system of Illinois – no one thought to address them since “[They Were] One.”

Even though contacting legislators had little effect on the Committee’s vast wealth and resources to intimidate the General Assembly (GA), the ISPA did not make my job easy, for I had to tally their form letters and telephone calls to legislators for the Committee and our “insiders” in the GA. (It might have been a lot worse for me if the IEA had united with those apostates and rallied in Springfield before the fall veto session of 2012).

It was about that time that I began to believe that the Committee’s compelling grip on legislators in Illinois was a form of historical imperialism, and I considered resigning my position. As for my job, allow me to explain: I was ordered to prevent any possible subversive activity in Springfield, Illinois after the passage of pension “reform,” even though it was already too late for teachers to halt the formidable Committee’s perpetration of media-controlled fabrications and falsified data that the vastly-inflamed and largely semi-literate populace and most of the GA accepted without question. As the rather gushing Jonah Edelman once said quite arrogantly about another bill that was meant to destroy the teachers’ unions and collective bargaining rights, we “did our homework” and were able to “jam this proposal down their throats!”

To my credit, I busted up a few renegades back then, though most teachers and retirees were astonishingly passive and indifferent about defending their rights and thought that political activism was a subversive activity, except when they were told to respond as a call to action with their barrage of emailed form letters that were sent straight to the legislators’ junk-mail folder (of course, repetitive subject headings identified them as spam).

It is true that most retired teachers at that time were not politically engaged, but they were whizzes in vacationing, gardening and golfing; of course, current teachers were hijacked by test-based obsession, value-added assessment, punitive accountability, performance-based agreements, merit-pay plans, diminishing autonomy, dictatorial administrators, bureaucratic and legislative malfeasance, government vouchers and financial improprieties, officious mega-rich foundations, impositions of market-based data-gathering approaches, incompetent and meddlesome school-boards, and the privatization and deregulation of public education. To put it simply: they had no time to engage.

Thus, I curiously developed an intolerable sense of remorse after the Committee and the 97th Illinois GA robbed Illinois teachers of their defined-benefit pension plan. After all, teachers only wanted what they had paid for throughout their long careers and what was promised them: their right to a rightfully-earned, deferred income that was constitutionally guaranteed in 1970 until the Committee’s substantial and wealthy influence on the courts ruled otherwise.

And although I was a wealthy entrepreneur, an actuary, and a registered investment adviser for Fidelity Investments at that time, with not two but three guaranteed pensions and a compounded COLA waiting for me upon retirement and a proud member of the Committee with the resolute belief in “free market” principles, sometimes, rather unexpectedly, I was stuck between the hypocrisy of my profiteering from the many naive teachers who opted out of their guaranteed pension plan (that undoubtedly hastened its destruction) and my insufferable Christian conscience.

Indeed, some days I hated teachers’ self-righteousness and their moral indignation. I thought that their pension was an entitlement that none of them deserved, and I wanted it expunged; other days, I wanted to renounce my oligarchic privileges, yearly bonuses, stock options, seven-figure salary and partisanship to the exclusive club known as “C-pentagon” or the Civic Committee of the Commercial Club of Chicago. I guess my ambivalence might have been the product of an unsettling greed for money, and to not only control my future but the future of mankind, while simultaneously becoming someone of exceptional holiness…

One day, while I was unwinding in my office and reading Crain's Chicago Business, a very old man came sprinting through the opened door. He was bellowing about how a member of the ISPA had gone quite mad in a local high school gymnasium while showing a power-point presentation to a few interested teachers who could never retire since the passage of the “long-ago and far away” 2012 pension reform. I was told how he had thrown his laser pointer at a Committee member, who he discovered had infiltrated the not-quite clandestine meeting, and then he absconded.

After inquiring further about the incident, I asked the very old man to guide me to this renegade. I grabbed some paper clips and a rubber band on my desk and left my office. A few frightened teachers stopped me on my way and told me about his irrational behavior.

On Fahner Boulevard, we saw signs of his trail. We passed several busted “Illinois Is Broke” pavilions, overturned tables, squashed attaché cases, scattered Illinois Policy Institute pennants, colorful leaflets about police and firemen entitlements from the Chicago Tribune, and many onlookers motionless with fear.

I clutched the rubber band in one hand and a paperclip in the other. On our quest to find him, we saw the president of the newly-formed Illinois Teachers’ Poverty Alliance (ITPA) and the House Minority Leader cowering at the corner of Laurence Msall and Miles White Avenue. The very old man wanted to stop and pick up some archaic manuscript from his car – I believe he referred to it as NBI #16 – and show it to them, but I told him that we had no time to waste.

I remember it was a vibrant day in early May. It was also the annual lobbying jamboree for the ITPA. As we walked slowly together, we began questioning bystanders about the whereabouts of this elusive rebel but failed to gather any useful information. I began to have second and third thoughts. There was a small commotion, and some Committee members and several politicians were running in the opposite direction. Apparently, the extremely-old Illinois Speaker of the House had been kicked in the testicles and was writhing on the sidewalk.

Then I saw him. I looked into the eyes of the man who did the deeds; “I looked into his soul” (as George W. Bush had once said about Vladimir Putin), and he looked at me. He was standing on the bottom steps of the State Capitol, waving a red, white and blue sketchbook and yelling at a queue of yellow school buses. He was about five-foot nine with lots of windswept white-and-gray hair and a surprisingly-trimmed goatee. He was bellowing about someone named Gregor and the transfiguration of a cockroach. Whatever he was mumbling, it was unintelligible.

I had already sent for a backup and for some provisions when an ITPA lobbyist handed me a box of 100 Universal Jumbo paperclips from his trembling hands. By now, quite a few people had gathered behind me to watch my every move. They began to shout: “Burn the illusion out of him!” “Freedom is slavery!” “Ignorance is strength!” (I must say, their taunts sounded strangely familiar).

Though he didn’t appear to be dangerous, I knew I couldn’t take any chances. As I started to walk towards him, the crowd followed closely behind. I was beginning to feel woeful about what I had to do. I had no intention of dispatching the poor fellow. I had merely sent for my cache to sensationalize the moment and to provide a little drama for the gathering crowd.

When I got within 10 yards of him, I noticed he was sitting on a rather large valise. He didn’t seem to notice us at first. He was tearing the covers off his sketchbook and scratching his ears with the blunt ends. He was murmuring something about being “a sick man, a spiteful man,” and something about his “liver hurting.” I stopped and watch him for a moment, listening for clues. However, there were none.

I glanced around me and noticed that the mob had become quite large. It was an enormous mob of at least 177 individuals, most of them from the Illinois legislative body. I gazed at the sea of curious faces, all certain about this “simple twist of fate.” One hundred and seventy-seven wills urged me on. I felt like a pawn, an absurd marionette in some surreal spectacle, but I had to play this out. I could not lose face. The principles of a free market, the spirit of the University of Chicago’s School of Economics, American Legislative Exchange Council, and the preservation of the American plutocracy were at stake. I could not falter. I could not disappoint my dead idol, Ayn Rand.

Then he stood up and began slamming the trunk against the Capitol steps, not once but several times. With no time to lose, I loaded one paperclip onto the slender, brown rubber band between my left thumb and index finger and fired. The paperclip struck his right kneecap, but he refused to go down. He stood upright and glared at me for a second. Then his eyes softened; they seemed to implore me to save him. Instead, I fired another fastener, hitting him in the left elbow. He turned sluggishly around, and I fired again, this time striking him in the buttocks. He appeared suddenly stricken, shrunken, as though the impact had finally sunk into him.

At last, perhaps eleven minutes later – not a minute less – he fell to the pavement. I walked over to him. He was still breathing, though his body quivered in undignified dejection. I pointed another clasp where I thought his heart might be and discharged three more rounds. He gasped and groaned, begging me to finish him off, but my rubber band had broken. I then turned and walked towards the jeering mob. I thought about how they had tied his destiny to mine. I became furious and threw the box of paperclips into the dispersing rabble. Within minutes, the Committee’s private security firm had arrived. I thought that legally I had done the right thing, for a mad retiree must be dispatched; besides he had thrown his laser pointer at a Committee member and kicked the extremely-old leader of the majority party caucus and presiding officer of the legislative chamber. Nonetheless, I felt guilty.

Afterwards, there were countless discussions about the incident. Opinions were divided. Several days later, the Committee banished me to their Clark Street command center in Chicago where I offered advice on acquisitions, capital projects, mergers, pension schemes, and off-shore banks accounts, until I defected nine months later. In the years that followed, I often wondered about the day I had almost exterminated a hapless, stalwart retiree simply to avoid looking like a fool.

Wednesday, September 14, 2011

A Letter to a Friend about Gun Control

"I know what you're thinking. Did he fire six shots or only five? Well, to tell you the truth, in all this excitement, I kind of lost track myself. But being this is a .44 Magnum, the most powerful handgun in the world and could blow your head clean off, you've got to ask yourself one question: Do I feel lucky? Well, do ya, punk?" –Dirty Harry Callahan

I worked as a reserve police officer on weekends, usually late at night to early morning; I drank a lot of steaming black coffee and taught high school students during the week a long time ago. I have always believed in non-profitable and stressful public service.  Furthermore, I have always believed in the theories of deterrence and retributive justice. I am for self-defense (I used to prefer Taekwondo in my younger years as a Black Belt, but I’m getting too old; besides, someone with a gun has a distinct advantage).

The 2nd amendment – established in 1791 – has been debated and re-interpreted quite often. The question disputed about gun control is whether it is a collective or individual right to own a weapon.

According to Silveira v. Lockyer (2002), a federal appeals court in California ruled that the 2nd Amendment does not protect individuals' right to possess firearms but does protect states' rights to protect themselves. (Note; this case was essentially a ban on assault weapons). In a subsequent court case, District of Columbia v. Heller (2008), the federal appeals court ruled that the District of Columbia law prohibiting handguns violated the individual’s right to possess firearms under the 2nd amendment. The Supreme Court granted certiorari (a writ issued by a higher court to obtain records on a case from a lower court so that the case can be reviewed), nevertheless.

So what rights does the 2nd amendment protect? According to Supreme Court Justice Joseph Scalia, the 2nd amendment protects an individual's right to possess a firearm “unconnected with service in a militia” and to use that weapon for traditionally “lawful purposes,” such as self-defense within the home.

I can imagine that many people believe that their right to "keep and bear arms" is a sure-fire method for impeding immediate bodily harm and robbery.  However, the problem is that Weapons of "Individual" Destruction (WID) and their facile availability are also in the hands of felons and the mentally impaired (the borderline deficient, bigots, morons, imbeciles, and idiots); the substance-induced (alcoholics and drug addicts); the schizophrenic, psychotic, paranoid, delusional, depressive, anti-social, and other disturbed personalities.  There's nothing you or I can do to change the depraved genetic pre-dispositions, or the unfortunate environmental influences of mentally-ill people, especially those who are armed with WIDs.

Thus, I am going to view the 2nd amendment's declaration that “A well-regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed” as a guaranteed right of the State as well as an assured right of an individual.

However, although I agree with background checks for private and gun show sales, and “gun control legislation [that mandates] prohibitions on concealed weapons and possession of firearms by felons and the mentally-deranged, and laws imposing conditions and qualifications on a [specific] commercial sale of arms [such as high-powered assault weapons]…” (District of Columbia v. Heller – Case Brief Summary), gun control legislation that will affect responsible law-abiding citizens will never deter the everyday robber or the potentially-deranged terrorist from obtaining illegal weapons, despite the government's feeble attempt to require states to automate a list of past felons and other mentally-disturbed individuals in the federal database (after the carnage at Virginia Tech). Why? It is impossible to predict who will become the next assassin.

-Glen Brown

For a recent update on Defensive Gun Ownership and Gun Control, Click Here


Wednesday, September 7, 2011

Pt. 3 of “Waiting for Super [Legislators]” to Address the Budget Problems of Illinois and the Officious Civic Committee

“Waiting for Super [Legislators]” to Solve the More Important Budget Issues of Illinois

If Illinois legislators possess fortitude and selflessness, they can establish a revenue system with a balanced but low and broad tax base to spread the burden of taxes to multiple citizen payers and restructure the state’s antiquated single-rate income-tax method. They can also tax services to reflect today’s economy. This will increase the State’s cash flow.

Furthermore, they can change the timing of tax payments; raise taxes on the wealthy (their tax rates are the lowest it has ever been in 80 years) and eliminate “corporate welfare” (deductions and loopholes), while cutting taxes for the middle class and expanding the Earned Income Tax Credit for the poor. In addition, they can pass a jobs’ reform bill and award employers with tax credits for creating jobs in Illinois. These reforms can be accomplished if legislators demonstrate the courage to forego their allegiance to a two-party political system that is compelled by the Civic Committee of the Commercial Club of Chicago and Civic Federation.

A Broader Tax Base Is Needed in Illinois

According to the National Conference of State Legislatures (June 2007), “A high-quality revenue system relies on a diverse and balanced range of sources… If reliance is divided among numerous sources and their tax bases are broad, rates can be made low in order to minimize the impact on behavior. A broad base itself helps meet the goal of diversification since it spreads the burden of the tax among more payers than a narrow basis does. And the low rates that broad bases make possible can improve a state’s competitive position relative to other states.”

Tax Services to Increase Revenue

Consistent with creating a broader tax base, the Chicago Metropolitan Agency for Planning (CMAP July 2011) argues that the tax system in Illinois and most other states do not reflect today’s economic realities. In the last several decades, the U.S. economy has slowly shifted from manufacturing industries to a “services and information-based economy... Since the early 1970s, spending on services has exceeded spending on goods. In 2010, consumers spent twice as much on services (66.9 percent of total personal consumption expenditures) as on goods (33.1 percent of total personal consumption expenditures). This shift in the fundamentals of the economy has changed the relationship between consumption and tax revenue… Changes in personal consumption have resulted in the Illinois sales tax covering a decreasing proportion of consumption expenditures.”

Furthermore, in accordance with these statistics, the Center on Budget and Policy Priorities (July 2009) proclaims that “a majority of states apply their sales tax to less than one-third of 168 potentially-taxable services. Five of the 45 states with sales taxes impose them on fewer than 20 services… Research finds that purchases of some services do not fall as precipitously as durable goods purchases do when the economy slows nor rise as rapidly when the economy is booming” (Federation of Tax Administrators). States that do not tax services, such as Illinois, “probably could increase [its] sales tax revenue by more than one-third if [it] taxed services purchased by households comprehensively."

The tax system in Illinois is inefficient. “The tax system itself is influencing economic activity” (CMAP) by taxing goods that are consumed rather than the consumption of resources.

A Better Timing of Tax Payments Is Essential

Though cash flow continues to be an issue, as Illinois has had a running General Revenue Fund deficit… since November 2000…, cash management practices are greatly affected by budgetary practices in relation to deferred liabilities which place additional pressures particularly in the first and second quarters of the year to pay those expenses. Timing of tax payments also affects the State’s cash flow and should be adjusted accordingly.

Tax Equitably: Besides Ending “Corporate Welfare,” Tax the Wealthy

Illinois income tax uses a single rate structure that results in low-income wage earners paying more taxes than the wealthy. As stated by the Institute of Taxation and Economic Policy (ITEP November 2009), Illinois is among ten states in the nation with the highest taxes paid by its poorest citizens at 13 percent. The tax system is inequitable because lower-income taxpayers typically spend a higher percentage of their income on tangible goods than higher-income people.

In 2007, the top one percent of wage earners in the U.S. (with an average income of just under $2 million a year) paid 6.4 percent in total taxes while the bottom 20 percent of wage earners (with an average income of just under $11 thousand a year) paid 10.9 percent in taxes (ITEP).

Furthermore, consider 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 seven states that use 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 5 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. “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. There are no equal rights when there is inequity of wealth and when promises are made to support and to preserve the fortunes of a few at the expense and victimization of others. The continued attempt to balance the State’s budget by scapegoating public employees’ and their 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 budget issues in Illinois.

-Glen Brown

For an update on solutions for the State’s revenue and debt problems, Click Here.