Tuesday, January 18, 2011

Both sides on tax hike agree more needs to be done

By Lauren N. Johnson and Jamey Dunn


While many teachers and social service providers disagree with the much of the business sector on the merits of Illinois’ income tax increase, representatives of both groups say legislators must do more to get the state budget in line.

A number of groups that represent Illinois businesses are not pleased with the income tax increase package that Gov. Pat Quinn signed into law last week because they say reforms were left out of the final legislation.

Todd Maisch, the vice president of government affairs for the Illinois Chamber of Commerce, said the state should focus on encouraging hiring because higher employment rates mean the personal income tax would bring in more revenue, even without an increase.

“Despite an awful lot of discussion about reforms, we didn’t get any reforms to accompany the income tax increase. We think that ought to be the No. 1 focus when the legislature returns,” Maisch says.

Jeff Mays, president of the Illinois Business Roundtable, said unless the state takes a step further to address spending and the backlog of overdue bills, the new tax increase would not solve Illinois’ budget problems. “If you just raise taxes and don’t change how you’re spending your money, you’re just going to be filling a hole while at the same time you’re digging it deeper,” Mays says.

Mays supports reforms made to the pension systems last spring, as well as recent changes in the Medicaid system, but he said those alone would not be enough to address the state’s $13 billion deficit. “The Medicaid reforms [passed during the lame-duck session] were modest but good,” Mays says. However, he says lawmakers need to work on changes to the health care system for state employees, as well as reforming they way the state budget is created. “If you just raise taxes and don’t change how you’re spending your money, you’re just going to be filling a hole while at the same time you’re digging it deeper,” Mays says.

Maisch says a number of commercial developers have watched pending projects canceled as a direct result of the higher income tax for Illinois businesses, which increased from 4.8 percent to 7 percent for the next four years.

“One [tax increase] is not going to create a stampede,” Mays says, referring to some Illinois companies' threat to leave the state.

Compared with other states' costs for employers, Mays says: “We’re way out of line on unemployment insurance, we’re way out of line on corporate taxes and we’re way out of line on litigation. It’s the cumulative effect of all those things that’s making employers ask, ‘Why invest in Illinois?’”

Representatives of teachers and social service providers say, however, that the income tax increase was necessary to address the state’s financial crisis. But they are concerned that schools and providers may not receive the money the state owes them quickly enough to prevent more layoffs and program cuts.

“I think from our perspective, we realize that that was a tough choice for lawmakers, but it was the right one. … From our perspective, there was no other choice,” says David Comerford, spokesperson for the Illinois Federation of Teachers.

He said the failure of a proposed $1-dollar-a-pack cigarette tax increase, which would have brought it an estimated $370 million for schools, was a disappointing blow for education. Comerford says while there are reports of a last-minute agreement to funnel some money to underperforming schools, until such funding is officially approved, educators are operating under the assumption that there is no new money for education.

“At this point, it really doesn’t provide any new money for education. … Right now we’re just looking at flat funding for education. … Compared to the alternative of layoffs and massive cuts, it is a good thing.”

Don Moss, coordinator for the Illinois Human Services Coalition, agrees that the increase was the only option to address the budget crisis. However, he says lawmakers should approve a borrowing plan to pay off the backlog of overdue bills owed to schools, vendors and social service providers. A proposal to borrow $8.75 billion, which supporters said would have allowed the state to start sending checks out in March, failed to get the needed support to pass in tandem with the tax increase. However, Senate President John Cullerton introduced the plan for consideration in the new legislative session as Senate Bill 2.

Moss says that while the tax increase will help the state get its fiscal house in order, it will take time for Illinois to start seeing the new revenue. He says those owed money — some for months on end — need to be paid as soon as possible. “The nonprofit social service providers’ backs are against the wall. … {The state} need[s] to get as close to current as possible in the payment of [its] bills.”

Comerford says it is premature to try and predict how the tax increase would affect funding for different areas of the state budget because Quinn has not yet proposed spending for the next fiscal year. “We’re going to have to see what else the governor’s plan is [in February when he makes the budget address]. … As much as it sure felt like a budget was passed [last week], one hasn’t been.”

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