Déjà vu: Illinois has billions in unpaid bills, Madigan calls for another tax hike

Hilary Gowins

VP of comms @illinoispolicy. Likes dogs and basketball.

Hilary Gowins
January 27, 2016

Déjà vu: Illinois has billions in unpaid bills, Madigan calls for another tax hike

Without fundamental reforms, the tax hike state Democrats want to impose will only drive Illinois further into decline.

The state of Illinois has $7.1 billion in unpaid bills as of Jan. 26. The state also has $111 billion in pension debt.

But wasn’t the state’s historic 2011 tax hike supposed to fix that?

At the time, Illinois’ Democratic leaders promised as much. But Illinois is still sitting on a mountain of debt and unpaid bills.

The 2011 income-tax hike partially sunsetted Jan. 1, 2015, as required by law, giving taxpayers much-needed relief – according to the Tax Foundation, in the wake of the 2011 income-tax hike, Illinoisans carried the fifth-highest tax burden in the nation.

The tax-hike sunset was a good thing – instead of fixing Illinois’ problems, the 2011 income-tax hike did nothing but give irresponsible politicians more money to feed the state’s pension monster. In fact, nearly $0.90 of every tax-hike dollar went toward government-worker pensions. But despite the influx of $31.5 billion from the tax hike, the state pension shortfall increased by a third.

State politicians enacted none of the foundational reforms necessary to fix Illinois’ finances, even as taxpayers were forced to hand over an additional week’s pay to fund the tax hike.

Now, Illinois’ top Democratic leader, House Speaker Mike Madigan, is spreading the word that Illinois needs to reinstate higher income-tax rates.

In December 2015, the powerful speaker of the Illinois House of Representatives said at an event held at the City Club of Chicago that hiking Illinois’ income-tax rate back to 5 percent – up from the 3.75 percent rate Illinoisans pay now – is the best way to fix Illinois’ budget woes.

Madigan should learn from the fallout of the 2011 income-tax hike.

Politicians may be tempted to think that asking people to hand over more money will be an easy fix to what ails the state – but this path would simply doom the state to continued decline. In 2012, the year after Illinois enacted the income-tax hike, the state lost 66,922 taxpayers and their dependents on net to out-migration, according to the Internal Revenue Service. They took $3.8 billion of taxable income with them. In 2013 it was another 81,117 people and $4.1 billion of taxable income. These numbers are the worst in recorded state history.

Since the 2011 tax hike, major credit-rating agencies, including Moody’s Investors Service, Standard & Poor’s Ratings Services and Fitch Ratings, have downgraded Illinois’ credit several times. Illinois now has the lowest credit rating of any state in the nation at just a few levels above “junk” status.

It would be naïve to think the same won’t happen again if politicians continue to ask for more money without reforming the way the state does business. Without reforms, Illinois can’t afford another income-tax hike.

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