Illinois' path offers lesson

[Beet]

Last year, Illinois and Wisconsin each faced serious budget crises. Projected revenue could not cover expected spending, and massive deficits threatened the fiscal stability of both states.

You're probably familiar with the budget-repair efforts by Gov. Scott Walker. I'd like to tell you more about the route Illinois took, which was vastly different and over the past year has proven itself a failure.

Link

[Marokai Backbeat]

Yet after reading that article, I'm still unclear on what 'lesson' it supposedly is.

[Beet]

Yet after reading that article, I'm still unclear on what 'lesson' it supposedly is.

I think it's that the huge tax hike removed pressure on politicians to cut spending. The tax hike was probably necessary, but the fact that Illinois today is in worse fiscal shape than ever despite of it is an embarassment. It's very depressing to see this side of politicians.

[Ban my account ffs!]

Reform of medical spending and pensions are key to keeping states solvent.  You can do so by busting unions and alienating a lot of the public... Or you can sit down, lock the doors, and mete something out.

If Walker were smart, he would've gone to the Democrats before anybody else and asked them to back him on serious reform with everybody at the table.  The carrot would be that Democrats and unions would be able to participate in the details of a plan generally guided by the majority Republicans... The stick being that the Republicans could do what they actually did do...and let the voters decide their fate.

If the Democrats were smart, they'd have taken Walker up on the offer.

But Walker isn't smart, so it was never going to happen that way.

[anvi]

I don't disagree with the point Beet is making.  I think the article itself glosses over, as many reports have done since these hikes were instituted, how low the base rates were to begin with before the tax hikes.  But, all the same, Illinois is still bleeding for cash, and Quinn is staggering around looking for corners to cut.  Conditions are surely very bad here.  

I'd only briefly suggest that, when we throw around the phrase "cutting spending" in these discussions, we often trivialize what sorts of things will actually be cut given dramatic austerity measures, and what the consequences will be.  When we say that government spends too much, it sounds like the government is just blowing its allowance for expensive drinks and ladies of the evening in Vegas or something. But going through an actual state budget and identifying which programs to gut can be an incredibly painful exercise.  I'm not just talking about political patronage either, I'm talking about decisions regarding cutting off people in need or people who have for a long time provided valuable service to a state.  It's all too easy for us to bitch about government spending on an internet forum, actually being responsible for clipping the needy or long-standing public servants off at the knees is something else.  JMO

[greenforest32]

I don't disagree with the point Beet is making.  I think the article itself glosses over, as many reports have done since these hikes were instituted, how low the base rates were to begin with before the tax hikes.

Don't know the details of the corporate tax, but Illinois' flat (boo) income tax rate was 3% before it was raised to 5%:

[Marokai Backbeat]

Yet after reading that article, I'm still unclear on what 'lesson' it supposedly is.

I think it's that the huge tax hike removed pressure on politicians to cut spending. The tax hike was probably necessary, but the fact that Illinois today is in worse fiscal shape than ever despite of it is an embarassment. It's very depressing to see this side of politicians.

I agree, that shouldn't have given them an excuse to do nothing. But the point that article tries to make, by someone from a right-wing "think-tank," is only using that argument to basically argue against tax increases altogether. It tries to compare the situation to Wisconsin, which is incomparable for a number of reasons, and not only that, but a silly false choice between a negligent option, or an insanely unnecessarily aggressive option.

It doesn't seem to be making any other point than "Illinois still sucks" but it presents that argument as if it's making any sort of solid, substantive argument against tax increases in general, which it's not. It also presents the tax hike in disingenuous terms of "raising the tax by 67%!" when the real tax increase was from a very low base rate to a still-comparatively-low rate of 5%.

I just don't see how this article is useful for anything. It's disingenuous at worst and vacuous at best.

[krazen1211]

Illinois pension spending has quadrupled over the last couple decades. It's what happens when the union parasites dig in and start leeching.

[muon2]

Let me offer a number of observations.

On the tax hike - The apparently low rate of 3% also has virtually no deductions. I checked a few years ago and I would have paid less income tax in MO at 6.5% than in IL at 3%. Deductions matter and are rarely factored into rate comparisons. On the corporate side the rate was raised to 9.5% making it one of the highest in the US. Also a number of routine deductions like R&D and net operating loss were eliminated with the hike, but were reinstated in Dec as their impact was showing up in a clear loss of business from the state.

On the spending - Last year there was a major bipartisan Medicaid reform act in IL, which addressed the fact that IL offers more optional services than almost any other state. However, the administration has implemented very little of the reform. Official estimates put the potential savings at 1-1.5 G$.

On the article - It has some problems. The FY 12 budget used a conservative revenue forecast, and should have been balanced, but there are other factors than what is reported in the OP link. The biggest change was that the state was no longer bound to the 30 Medicaid payment cycle that was a requirement of the federal stimulus package. That's why doctor's don't know when they'll be paid because they are now in line with all the other vendors of the state (which includes local governments like schools). By spending less on federally reimbursable programs like Medicaid, the federal revenue is down by 500 M$, and that is about the extent of this year's budget shortfall. In any case a balanced operating budget does not include liabilities. The 8 G$ carryover from FY 2011 is one such liability and it was to have been reduced by any extra revenue received, but the federal shortfall has eliminated that possibility.

However, I would agree with the article that IL is not the model to follow. Snowguy is right when he suggests a modified WI model that includes an up front invitation to the stakeholders would be much better.