Wednesday, December 10, 2014

What’s the Hurry, Lisa Madigan?

“…State Attorney General Lisa Madigan last week asked the Illinois Supreme Court to speed up the appeal of Sangamon County Court Judge John Belz's Nov. 21 ruling, requesting oral arguments as soon as Jan. 22 and no later than March 10.

“She said the move was necessary to enable Illinois' fiscal 2016 budget to incorporate about $1 billion in cost-savings under the law, or adequate spending cuts or tax increases to offset those savings…” (Reuters).

Meanwhile, “all of a sudden the state is in a hurry to deal with public pensions” (Fred Klonsky) “[when] in 1917, the Illinois Pension Laws Commission warned leaders that the retirement systems were nearing ‘insolvency’ and ‘moving toward crisis’ because of the state’s failure to properly fund the systems. It also recommended action so that the pension obligations of that generation would not be passed on to future generations.

“The warning and funding recommendation went unheeded, as did similar warnings and recommendations found in decades of public pension reports issued before and after the pension clause was added to the Illinois Constitution in 1970.

“For decades, these reports consistently warned the public and lawmakers of the dire consequences of the state’s continued under funding and of the significant burden unfunded pension liabilities posed for taxpayers. They advised that the pension clause bars the legislature from unilaterally cutting pension benefits of retirees and current employees” (Eric M. Madiar). 

“In response to a motion by the state seeking to short-circuit the Illinois Supreme Court’s normal procedure and replace it with an unfairly rushed schedule in the appeal of a ruling that struck down Senate Bill 1—pension-cutting legislation affecting active and retired teachers, state employees and university employees—the We Are One Illinois union coalition and the other plaintiff groups have requested that the Court follow its established rules to ensure a fair process with ample time for all parties…” (We Are One Coalition). 

Why is Lisa Madigan in a hurry to break a constitutional contract with public employees and retirees when it appears the Illinois General Assembly is prepared to repeal Quinn’s Tax Hike and continue to ignore legitimate concerns?

What are these legitimate concerns?

The current “Pension Ramp” does not work for the five public pension systems. The “Ramp” entails larger payments today as a result of the 1995 funding law – Public Act 88-0593 – to pay the pensions systems what the state owes. There needs to be a required annual payment from the state to the pension systems; the debt needs to be amortized for a longer frame of time (a flat payment) just like a home loan that is amortized; though the initial payment will be difficult in the beginning, over the long term it will become a reduced cost and a smaller percentage of the overall Illinois budget as it is paid off throughout the years.

Legislators should focus upon structural reform for increasing revenue, but they haven’t the political will to do it. What is needed to solve the budget problems in Illinois is a better revenue base to pay the state’s debts. What is easier to do is to evade serious problem solving of the budget issue and to continuously victimize the state’s public employees.

Reform the state’s regressive tax. Politicians, the Civic Committee, Civic Federation, Illinois Policy Institute and the Chicago Tribune have capitalized on a mostly gullible public by calling for radical pension reform as the solutions for the budget problems in Illinois. They are diversionary, scapegoating tactics that will bring intentional, financial harm to public employees and allow policymakers to escape their legal and ethical responsibility.

“At the core of the budget ‘crisis’ facing [Illinois] is [its] regressive state tax structure… that is, low-and-middle-income families pay a greater share of their income in taxes than the wealthy… [A regressive tax] disproportionately impacts low-income people because, unlike the wealthy, [low-income people] are forced to spend a majority of their income purchasing basic needs that are subject to sales taxes” (United for a Fair Economy)…

Illinois is one of seven states with a regressive flat-rate tax. The state needs a tax rate that is “efficient with minimal impact on the economic decisions that taxpayers have to make” (Center for Tax and Budget Accountability CTBA), one that captures increased revenues in times of economic growth, one that maintains revenue collections during poor economic times, one that is simple and not liable to inconspicuous error, one that is transparent and builds trust with the state’s government officials (CTBA), and one that helps 99 percent of the state’s population! 

Focus on why the State of Illinois cannot obtain more revenue. Besides federal sources of income, the state uses only 11 sources of revenue: personal income tax (but note Illinois was tied for the fourth lowest individual tax rate on households in the top income bracket), corporate income tax (note extortionate tax breaks given to some Illinois corporations), sales tax (Illinois does not tax services like most other states for another significant source of revenue), corporate franchise tax and fees, public utility taxes, vehicle use tax, inheritance tax, insurance taxes and fees, cigarette taxes, liquor taxes and other miscellaneous (or rather unsubstantial) tax sources (Commission on Government Forecasting and Accountability). 

Focus on sales taxes, “a majority of states apply their sales tax to less than one-third of 168 potentially-taxable services… [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 Center on Budget and Policy Priorities).

Consider a broader-based taxation system that would provide a decrease in taxes for low-income and many middle-income families. Taxing services alone “would generate enough revenue to stabilize the General Revenue Fund and prevent structural deficits that lead to cuts in basic needs and social service programs” (CTBA).

As long as Illinois politicians like M. Madigan (SB 1), Cullerton (SB 2404), Ives and Morrison (HB 3303), and others play their political ping pong game with one another and prioritize their own political opportunism, it will be impossible to obtain any just resolutions for the state’s budget problems.

Politicians who still favor pension reform prefer the easy way out of a difficult and challenging situation. 

The State of Illinois will not have a fair and sound tax system until it addresses the most important cause of the state’s budget deficits through significant state tax reform, and that will occur only when elected officials uphold the State and U.S. Constitutions instead of preserving their own self-regard and the wealthy corporatists that bankroll them.

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