July 05, 2005

An Empty Pledge

The Illinois General Assembly's 2005 legislative session was pretty dramatic. The state came closer than ever to achieving what most people agree is a long-overdue tax reform-- reducing local property taxes and increasing state income taxes. Such a reform, as embodied in this year's HB 750, would help the state to fund services in a sustainable way and would make the tax system less unfair.

But HB 750-style reform didn't happen in in the regular 2005 session, and there's basically one reason: Governor Rod Blagojevich's frequently reiterated pledge to veto any increase in income or sales taxes.

Forget for a moment the question of whether elected officials should pledge anything except to uphold the state constitution, and let's assess the impact of Blagojevich's refusal to allow an HB 750-style tax hike in 2005.

Short run impact: look at Chicago, where the sales tax rate just went up by a quarter cent on July 1. At 9 percent, the total general sales tax rate in Chicago is now higher than in any other state's biggest city. Look also at 40 home rules districts that hiked their sales tax rate last year. More generally, look at local governments who must either hike sales or property taxes or cut services-- which at the local level basically means education. When state lawmakers don't answer the tough fiscal questions, they usually pass them right on down to the local level. And that's clearly what has happened here. Local taxes are going up, big-time, in Illinois-- which makes Blago's no-tax pledge seem pretty empty.

Long run impact: The state legislature managed to avoid enacting tax hikes again this year, and did so in breathtakingly irresponsible fashion: by borrowing over $2.2 billion from the state's pension fund-- that is, money that was slated to go to public employees' retirement down the road. The state's pension system is already underfunded. So in the long run, the state will have to pay this money back. If Blagojevich's effort to "pass the buck" to locals constitutes an implicit tax hike for locals-- thus violating the spirit of his pledge--this pension raid arguably violates the letter of his pledge, since it amounts to a tax on future generations of Illinoisans.

This seems like the sort of stunt that people go to jail for. (Except for Congress, which has raised pension-raiding to an art form by using the Social Security surplus to fund tax cuts in the past four years.) But even if Blagojevich doesn't get sent to Joliet for this transgression, it's important to remember that his pension scheme is a short-sighted fix that simply papers over the structural problems facing the Illinois tax system for one more year. The billion-dollar budget deficits that Blagojevich has managed to muddle through in the past three budget cycles will be back next year--that's what structural deficits do; they keep coming back--and the state's pension fund will no longer be available to loot. Let's hope Illinois voters recognize the back-door way in which Blagojevich has violated his own no-tax pledge.


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