There Are Still Long Term Revenue Problems to Fix
The Problems:
1) Because the economy has changed and the Illinois tax structure has not, we run into continual budget crises. Our taxes tend to fall on the manufacturing and retail goods sectors that are declining relative to the whole economy. Tax rates on those sectors are too high and revenue does not keep pace with budget requirements, while the expanding service, financial and information sectors largely escape the existing taxes.
2) The corporate income tax is no longer a tax that can be effectively collected by state revenue departments. Multi-national corporations have become so large and their financial inter-relationships so complicated that it is virtually impossible to monitor the allocation of income to individual states.
David Brunori writes in his 2005 “State Tax Policy”, published by the Urban Institute:
The percentage of total state tax revenue collected from levies on corporate income has declined steadily for more than two decades. … More important, in every year since 1959, the corporate tax base has failed to keep pace with company profits, either worldwide or domestic. In other words, in relative terms, state governments are collecting less in corporate income taxes while corporations are earning more.
Robert Tannenwald, an economist with the Federal Reserve Bank of Boston, writes:
“Multi-jurisdictional entities are so thoroughly integrated that formulas designed to allocate their income geographically are in large part arbitrary and therefore controversial.”
3) The result over time has been a shift in tax burden away from business onto individuals as the response to these changes by state policy makers has been to increase individual income taxes.
Tannenwald’s study showed that between 1986 and 2000 the ratio of state corporation income taxes collected to corporate income decreased by almost 50 percent, while the ratio of state and local personal taxes and charges to personal income increased by 25 percent.
The Solutions:
1) The Governor suggested a gross receipts tax to address all three of the above long term structural problems, make the tax system fairer, and put the state on a sound fiscal basis moving into the future.
2) The only other alternative that has been suggested, SB/HB 750, does not address problems 1 and 2, and makes problem 3 worse.
6 comments:
Doug,
Is it your position that there is absolutely no way to cut spending, nor cut the rate of growth of spending?
Some of the critiques of our tax system are valid, but it's hard to take HB750 and GRT seriously when there isn't even a nod toward curtailing future growth.
There is always a way to cut the cost of state gov't which Gov Blagojevich demonstrated during his first administration by cutting the size of the state workforce by almost 20,000 positions.
There is no way to cut our way of the structural deficit problem without withholding essential services that the public has come to expect.
HB 750 would address the deficit but is much more regressive and punitive than the Gov.s Tax Fairness plan which would re-direct the burden back toward big business and away from the hard working individuals in our state.
Bill,
As I've commented before, one can't make the argument that the "state work force" has been cut when the raw number of education bureaucracy employees and their pay and benefits have been sky rocketing.
Early Retirees, and their actuarily impossible pensions are drains on the state budget.
Now, if you were to argue that these people have the clout to crowd out the entire public sector needs for infrastructure, new CTA stations and rail repairs, Community Colleges, and nearly everything else reasonable people might ask for in terms of government services, then reasonable people couldn't help but agree.
"There is no way to cut our way of the structural deficit problem without withholding essential services that the public has come to expect"
what a joke. There are 2 State Troopers patrolling the entire Illinois Tollway System at any given time. There are 25 State Troopers providing security for Gov Blagojevich. Stevenson had 1 off duty Chicago Policeman for security, as a comparison.
A good friend of mine who is a State Conservation Office mentioned that he was offered early retirement (at age 48) at the beginning of Blagojevich's term. He refused, saying since he does no work today at full pay, why would he take a pay cut to retire?
There is no way to justify spending more when the State is run more like a Pirate Ship than a business.
JBP
Maybe the state could save some money if it didnt employ all of Emil Jones Family or give raises to Jonses wife after she married him. Do all of Blagos contributors have to get state contracts and state jobs. Maybe if the state didnt run an airline for Blago so he could reside in chicago and work in springfield thats costing the state millions. Plus Blagos friends get rides on state planes at below cost costing taxpayers money to fly Blagos donors to get no bid contracts. Theres plenty of ways to save money but blago wants to spend spend spend.
anon 12:37. puh-leeze. these comments about cutting jobs that go to emil's family are hollow and add nothing to a meaningful discussion about spending and revenue challenges facing the state.
First, even if emil's friends or family no longer had their state jobs, they'd just end up going to somebody else. Or, even of you eliminated those jobs, then you'd have to apply the same approach to madigan, watson, cross and every other legislator in state government as well -- and if anyone says there's no proof that their friends or family have state jobs, then you are blind. If you cut all those jobs, you still wouldn't come close to addressing the revenue gap facing the state.
As four your uniformed comment about state planes and the governor, considering that he doesn't go to springfield all that often, there's hardly any money to be saved to begin with.
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