Bill proposes to tie Illinois state spending to what taxpayers can afford

Bill proposes to tie Illinois state spending to what taxpayers can afford

Lawmakers routinely spend faster than taxpayers’ incomes grow. A new bill would put Illinois with the majority of states that limit taxes or spending.

Family incomes grow slowly, but Illinois state spending grows rapidly – nearly 50% faster.

Most states recognize they can damage their economies by overtaxing residents. Illinois may soon join them.

State Sen. Suzy Glowiak Hilton, D-Western Springs, submitted Senate Bill 3008 on Feb. 5. The proposal would amend the State Budget Law to ensure the “rate of growth of general funds appropriations shall not exceed the rate of growth of the Illinois median household income.” It would apply to all budgets beginning with this year’s proposal for fiscal year 2021.

By creating a spending cap, state lawmakers will no longer be able to spend more than what taxpayers can afford. It encourages prioritizing economic growth because the General Assembly cannot increase spending if economic growth does not increase. A spending cap can also help avoid future tax increases because revenue will more closely mirror spending.

Illinois’ irresponsible spending pattern is nothing new: Between 2007 and 2017, growth in state spending outpaced Illinoisans’ personal incomes by an average annual rate of 48%. Illinoisans’ incomes grew at an average annual rate of 2.52% during that time, while state spending grew by 3.72%.

Despite two historic income tax hikes, and 20 new or increased taxes and fees passed last year, out-of-control spending has prevented the state from getting its fiscal house in order. Overspending leaves lawmakers with two options: raise taxes or borrow more.

Illinois’ outstanding debt is already sky-high, thanks to borrowing plus the interest that collects on the principal each year. If the General Assembly continues to spend at the current pace, the state’s revenues will never be able to catch up.

But if Illinois moves to enforce fiscal discipline on its state lawmakers, it would join 27 other states that as of 2015 had tax or spending limits – 15 of those enshrined in state constitutions. Texas and Tennessee have implemented similar spending restrictions, and both have budget surpluses, no state income tax and lower property tax rates than Illinois.

Overspending has led to 18 years of state budget deficits, with a 19th year expected from this fiscal year.

Last spring, lawmakers forced through $85 billion in spending in just 12 hours. The $40 billion, 1,581-page budget passed with bipartisan support hours after it was first introduced on the House floor. A $45 billion dollar infrastructure plan was also passed that day.

Gov. J.B. Pritzker and lawmakers from both sides of the aisle celebrated the budget as one that will fix Illinois’ problems and as truly balanced. Research showed otherwise. The budget was a much as $1.3 billion out of balance, plus residents had suddenly become responsible for those 20 new or increased taxes and fees that are taking another $4.6 billion out of the state economy.

Illinois has tried and failed to tax its way out of its fiscal nightmare, but there are solutions that don’t involve higher taxes. The Illinois Policy Institute’s Illinois Forward plan would balance the budget, decrease debt and offer tax relief within five years. Binding growth in Illinois’ discretionary spending to its economy is part of that plan.

Other major parts of the plan include a constitutional amendment allowing the state to control its largest cost driver: public pension debt. Illinois owes its five statewide pension plans $137 billion by the state’s estimate, but $241 billion by an independent estimate. An amendment to recognize the distinction between past and future benefits has begun to gain traction in the state after being promoted by the Illinois Policy Institute last year. State Rep. Deanne Mazzochi, R-Elmhurst, introduced a constitutional amendment that can protect earned benefits while giving the state flexibility to modify future accruals. In broad terms, the idea has been endorsed by former Chicago Mayor Rahm Emanuel, the Chicago Tribune editorial board and received positive coverage from the Chicago Sun-Times.

Uncertainty is the enemy of economic growth, whether it be the stock market dropping over coronavirus concerns or residents leaving Illinois for a sixth consecutive year because they dislike the taxes. Linking state spending and economic growth would help create certainty in Illinois.

Illinois senators on both sides of the aisle last year saw that need and were backing a constitutional amendment to create that link. That proposal died, but lawmakers this spring have another chance. SB 3008 provides a route to greater certainty.

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