Budget and tax year-end review: a recap of the best and worst of 2012

Unfortunately, 2012 was another dismal year for budget and tax policy in Illinois. It seems that the more things change the more they get worse in this state. But the Illinois Policy Institute is fighting to fix that. We believe that Illinois can once again become a beacon of economic freedom, individual liberty and prosperity....

Unfortunately, 2012 was another dismal year for budget and tax policy in Illinois. It seems that the more things change the more they get worse in this state. But the Illinois Policy Institute is fighting to fix that. We believe that Illinois can once again become a beacon of economic freedom, individual liberty and prosperity. But in order for this future to be realized, 2013 cannot be another year of failed policies and reforms that place Band-Aids over gunshot wounds.

In this blog post, I’ll outline the year’s best and worst budget and tax policy.

The worst of 2012:

• Unpaid bills total $9 billion: To date, Illinois has 221,500 backlogged vouchers totaling more than $7 billion. Coupled with a few other backlogged commitments, Illinois’ stack of unpaid bills now totals $9 billion.

• Pension debt grew by nearly $12 billion: According to the latest actuarial reports, the state’s five public pension systems owe a combined $94.6 billion. That’s up 14 percent from the $82.9 billion reported last year. And, as new accounting rules are phased in during the next few years, Illinois’ true pension debt will be realized – to the tune of more than $200 billion.

• A year of downgrades: Moody’s Investors Service gave Illinois the nation’s worst credit rating, an A2, in January. Then Standard & Poor’s Ratings Services lowered the state’s credit rating in August after lawmakers failed to pass pension reform. And just earlier this month, Moody’s threatened Illinois with another credit downgrade by revising the state’s outlook to negative from stable.

• The tax hike failed: The record 2011 income tax hike continued to rake in billions from families and businesses across the state. In fiscal year 2012 alone, the state collected an additional $7 billion from the tax hike. The increased revenue was supposed help Illinois get its fiscal house in order and pay down its overdue bills. Instead, additional revenues fueled the state’s habitual overspending and allowed it to dodge structural reforms. In fact, Illinois’ economic and fiscal condition worsened after the tax hike.

• Gearing up for billions in higher taxes: Lawmakers put more tax hikes on the table this year. They are considering making the temporary tax hike permanent; and it doesn’t stop there. This year Gov. Pat Quinn announced that passing a progressive tax is “one of my goals before I stop breathing.” A multibillion-dollar tax hike in the form of a progressive income tax would destroy economic growth, severely hinder job creation and make Illinois’ already high taxes even higher. These higher taxes would, of course, be in addition to the $23 billion in higher taxes Illinoisans would face if the state is pushed off the fiscal cliff.

• More Illinoisans unemployed: Illinois’ unemployment rate consistently outpaces the national average – 600,000 Illinoisans are looking for work and 1.1 million are underemployed. Illinois’ unstable policy environment is pushing consumers and job creators out of our state.

• Veto session failures: Illinois legislators, among the highest paid in the nation, discussed little and achieved even less in the way of structural reform during the 2012 fall veto session. There was a push for lawmakers to borrow another $4 billion from the bond market to pay down the state’s unpaid bills. But taking out a second mortgage to pay off the state’s credit cards would simply be another way to dodge real spending reform. Members of the Illinois House of Representatives also revealed a new pension reform proposal during session. Unfortunately, the proposal falls short of what it will take to fix Illinois’ massive pension crisis.

The best of 2012: 

There wasn’t much in the way of success stories for budget and tax policy this year. But the good news is, our neighbors are moving in the right direction. Michigan, for example, became the 24th state to give individuals the right not to join or support a union through Right-to-Work legislation. This puts pressure on Illinois lawmakers to get serious about making the structural reform that it will take to secure a brighter and more prosperous future for our state. Illinois has amazing potential to lead the nation in economic growth and job creation. But the state’s fiscal crisis is one of the worst in the nation, meaning that fixing the current system will take some of the nation’s boldest reforms.