“…Despite being one of the wealthiest, most populous states in the
nation, Illinois continually struggles to fund the core services of education,
healthcare, human services, and public safety. This severely impacts the most vulnerable
populations in the state, such as individuals suffering from mental illness,
those with disabilities, the elderly, and all students in the state’s public, K-12
Education system.
“The root cause of all the problems is the state’s poorly designed and
antiquated tax policy, which is so flawed it has generated structural deficits in
the General Fund that have persisted for over 25years. The reforms outlined in
this paper effectively eliminate the state’s structural deficit, and generate
the fiscal capacity Illinois needs to satisfy the state’s demographically driven
demand for core services…
“Resolving Illinois’ longstanding fiscal shortcoming requires both
revenue policy reform and pension debt re-amortization: over spending on
current services is not the problem.
“…Illinois is a low spending
state that has been reducing spending on services over time… [A] flawed tax
policy is the driver of Illinois’ recurring budget crises… The
only sustainable
path to eliminating this structural deficit without imposing significant
additional cuts to those four, core services [education, healthcare, social
services, and public safety] involves: (i)
modernizing Illinois tax policy to generate adequate recurring, sustainable tax
revenue; and (ii) re-amortizing the debt Illinois owes to its five pension
systems…
“Reform state income tax policy by (i) increasing the personal income
tax rate from
3.75 percent to 4.75 percent or 5 percent, including some retirement income in the personal income tax base [and] increasing the corporate income
tax rate from
5.25 percent to
6 percent; (ii) eliminate those corporate tax expenditures which are not generating a public
good; (iii) reform sales tax policy by expanding the
base of sales tax to include most
consumer services; and (iv) impose a tax on sugary
sweetened beverages…
“To modernize its sales tax and generate revenue in
a stable fashion that comports to modern consumption and economic patterns,
decision makers should expand the base of the Illinois sales tax to include consumer
services…
“If the state were to reform its
tax policy as suggested previously in this Report, but failed to address the current
repayment schedule for its pension debt, Illinois would continue to experience fiscal
problems.
“While modernizing Illinois’
flawed tax system represents the first and most crucial step needed to resolve the
state's fiscal issues, to eliminate the entire structural deficit, one more
reform is needed: re-amortizing the debt owed to the state’s five pension
systems…
“Given that benefits cannot be
cut constitutionally, the only viable option for resolving the significant
unfunded liability owed to the state’s pension systems is to re-amortize the
repayment schedule created under the Pension Ramp in a manner that (i) increases
the funded ratios of the five systems annually to the point that they become
healthy; (ii) accomplishes that growth in funded ratio even after accounting
for all cash flow obligations of the systems to pay benefits to current and
future retirees; and (iii) is affordable, given the other demands on current
tax revenue to fund core services…”
For the complete report, click here.
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