Ralph Martire: Graduated tax would help address state’s structural deficit

http://bit.ly/2VoR8ER

Illinois hasn’t balanced its General Fund budget even once since 1980. Oh sure, there have been numerous times electeds in Springfield have claimed to pass a balanced budget in a given fiscal year — but in each instance such claims only considered projected revenue versus projected expenditures for the year in question. What’s been missing, however, has been any acknowledgement of unpaid bills left over from the prior fiscal year. The second those bills are carried forward, the claimed “balanced budget” disappears.

For context, in the proposed General Fund budget for fiscal year 2020, the Governor’s Office of Management and Budget projects $38.7 billion in spending, which consists of: $12.6 billion in hard costs the state has to pay by law, covering things like debt service, health insurance and pensions; and another $26 billion in discretionary spending on services — over 95 percent of which goes to education, health care, human services and public safety. That spending is covered by $38.9 billion in projected revenue, resulting in an on-budget surplus of around $200 million. The problem is this seemingly rosy picture fails to account for the $8.39 billion in unpaid bills projected to remain outstanding at the close of fiscal year 2019. When these bills are charged against fiscal year 2020 revenue, the General Fund moves from being a little in the black to a lot in the red.

To his credit, Gov. J.B. Pritzker acknowledges Illinois’ General Fund has been producing a long-term structural deficit for decades. And uniquely for both a candidate and now sitting governor, he’s also acknowledged Illinois’ long-term structural deficit has been in large part caused by flawed tax policy that produces insufficient revenue — not overspending on services. In fact, in nominal, non-inflation adjusted dollars, Illinois is scheduled to spend more than $1 billion less on education, health care, human services and public safety in fiscal year 2019 than it did a decade ago.

Again to his credit, Pritzker proposes to address a structural deficit problem primarily caused by tax policy that fails to generate adequate revenue, by reforming tax policy to raise new revenue. But given the demonstrable growth in income inequality over the last 30 years, the governor wants to raise all new revenue from those at the top of the income ladder who can afford it. To that end, Pritzker has proposed a “Fair Tax” that would impose higher tax rates on higher levels of income and lower rates on lower levels of income. This proposal generates an estimated $3.4 billion in new revenue by increasing taxes on the wealthiest 3 percent of taxpayers, while cutting state income taxes paid by the bottom 97 percent.

Of course the tax policy “Chicken Littles” of the world, who claim the sky is falling every time any elected official has the temerity to suggest a tax increase, have been out in force attacking Pritzker’s Fair Tax. Each of these attacks has used charged rhetoric designed to scare voters. Rhetoric, as it turns out, that’s never substantiated by the data.

The latest canard they’re trying to sell to the 97 percent of Illinoisans who are expected to get a tax cut under Pritzker’s proposal is that moving to a graduated rate structure somehow makes it more likely middle-class folks will be subjected to future tax increases than if Illinois kept its current flat rate. Which is goofy in two ways. First, if Illinois keeps its flat rate, any future tax increase would have to include the middle class. Second, the Tax Foundation maintains a database covering every state with a graduated rate income tax that goes back to 2002. Since then, guess what: 80 percent made no changes at all. Those that did actually cut income taxes on the middle class almost 2.5 times more frequently than they raised them.

In other words, the claim that just having a graduated rate structure makes it more likely a state will increase taxes on the middle class is, like every other claim these Chicken Littles raise, not supported by the facts.

Ralph Martire is Executive Director of the Center for Tax and Budget Accountability, a bipartisan fiscal policy think tank, and the Arthur Rubloff Professor of Public Policy at Roosevelt University. rmartire@ctbaonline.org.

22-Talk,26-Delivered,16-Econ,AllPolGA

Columns,Region: Springfield,Feeds,Opinion,Region: Central,City: Springfield

via Columns – The State Journal-Register http://bit.ly/2SlLu5R

May 14, 2019 at 08:13PM

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