Friday, September 11, 2015

“A Common Sense Solution for Illinois’ Fiscal Solvency” (from the Center for Tax and Budget Accountability)

“…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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