Senate Democrats in Illinois, with a final vote of 32-26, have just passed a new budget proposal that includes a massive personal and corporate income tax hike and an expansion of the state's sales tax, after saying they are no longer willing to wait for a broader deal with Republicans.
As the Chicago Tribune noted earlier this morning, the Democrats' budget proposal includes a ~33% hike in both the the personal and corporate income tax rates and an expansion of the state's share of sales tax revenue. In all, the package would cost Illinois taxpayers an incremental $5 billion.
Democrats spent the weekend tweaking the spending plan, and unveiled an updated proposal late Monday. It calls for spending $37.3 billion after raising about $5 billion through the tax hikes; a floor vote is expected Tuesday, said Sen. Heather Steans, a Chicago Democrat and key budget negotiator.
The blueprint relies on the passage of companion legislation that would raise the personal income tax rate from 3.75 percent to 4.95 percent, which is just below the 5 percent rate in place before Rauner took office. The corporate income tax rate would be hiked from 5.25 percent to 7 percent.
Meanwhile, the state's share of the 6.25 percent sales tax would be extended to various services not currently covered, such as dry cleaning. The proposal also calls for ending three corporate tax breaks, including requiring companies that drill on the outer continental shelf and do business in Illinois to pay income taxes.
Of course, the Senate bill passed by Democrats is unlikely to become law as Illinois' Republican Governor Bruce Rauner, presumably along with a fairly substantial percentage of Illinois residents, oppose such massive tax hikes.
Some Republicans have said they would only sign off on a plan to raise the income tax rate if it's coupled with a property tax freeze, a key component of Rauner's agenda. The Democratic budget plan does not contain a property tax freeze, which Democrats have argued would hurt local governments and schools that rely on the money.
A Rauner spokesman declined to comment Monday evening. But Brady warned that anything that passed without GOP votes was unlikely to win approval from Rauner.
"I can't imagine a budget that could pass with only Democratic votes is one that the governor could support," said Brady, the GOP senator, who added that any action could undermine ongoing talks.
Meanwhile, as we've noted multiple times in the recent past, with Illinois pension systems roughly $130 billion underfunded, state politicians pretty much have to raise taxes because anything less would entail finally admitting what most of us have known for some time, namely that the state of Illinois is insolvent and undoubtedly headed for bankruptcy and/or a federal taxpayer bailout. That said, the latter solution is not very 'politically expedient'...better to kick the can down the road for as long as possible. Here is a brief excerpt from our previous post entitled "Illinois Pension Funding Ratio Sinks To 37.6% As Unfunded Liabilities Surge To $130 Billion":
That said, certain states are better at the ponzi game than others and the great state of Illinois, we must say, is one of the best. As we noted a few months ago, Illinois governor Bruce Rauner even admitted to being a willing participant in his state's pension ponzi warning that should his largest public pension fund do what it should have done long ago, it would put a big dent in the state's already fragile finances and lead to "crippling" pension payment hikes. But, if you ignore the problem then surely it will just go away...good plan.
And, while the pension ponzi can likely outlast Rauner's term as governor, eventually funding for current claims can only be borrowed from future generations for so long before finally running out of cash. As the latest "Special Pension Briefing" report from Illinois' Commission on Government Forecasting and Accountability (CGFA) points out, that time may be getting very near.
Per the latest actuarial valuations, the 5 largest publicly-funded Illinois pensions are now $130BN underwater and only 37.6% funded.
Meanwhile, the problem with hiking taxes at the state level is that people can simply choose to move to another state, something which Illinois residents are doing in record numbers already (see "People Are Ditching Chicago In Record Numbers As Windy City Leads U.S. In Population Loss"):
The metro area declines are heavily concentrated in Cook County, but show signs of spreading to outlying counties, too. For instance, the bureau estimates that DuPage County lost 3,000 people in the past two years, and that Will and Grundy counties had small population losses last year.
The bureau did not break down the data by municipality, so it's impossible to tell for sure if the Cook County decline was in Chicago proper, suburban areas, or both.
One particularly stunning figure: net domestic migration, with an estimated 89,000 more people moving from the Chicago area to other portions of the country in the past year than those who moved in.
Perhaps it's time to admit that the socialist utopia of America's Midwest has failed? Nah, that level of honesty wouldn't help anyone get re-elected.