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Reason Foundation

Illinois Makes a Late Night Snack Out of Taxpayers

David Godow
January 12, 2011, 2:52pm

Ever wonder if your midnight trips to the refrigerator are keeping you from dropping those extra pounds? Now Illinois lawmakers, having made a late night snack of taxpayers, can wonder the same thing about the state budget. Around 1:20am this morning, the Illinois Senate passed a tax hike of historic proportions to help close the $15 billion budget deficit facing the state this year. The Chicago Tribune reports here.

The measure, passed yesterday by the state House and supported by Gov. Pat Quinn (D), will raise the state's personal income tax rate from 3 percent to 5 percent and the rate on corporations from 4.8 percent to 7 percent; in all, it's expected to bring in around $6.5 billion per year. A separate measure allowed the state to borrow almost $4 billion to make its required contribution to its public employee pension fund.

Success for the hike, which potentially represents the largest tax hike in Illinois history, was by by no means guaranteed - it passed by a measly one (1) vote in the Senate, and three in the House. As a result, some lawmakers have managed to repurpose a fiscal austerity bill to increase spending for their pet causes: a nascent revolt against the bill was quelled when the Governor promised to increase education spending by $250 million over the next 4 years.

It's no surprise that the tax increase passed, ultimately, as it seems unlikely that a legislature dominated by the Democratic Party would pass a budget solution with spending cuts as its rather than tax hikes. What will be surprising is if the various rate increases, scheduled to roll back somewhat (though not to previous levels) in 2015, actually are allowed to do so.

At the danger of repeating the old cliché about there being nothing as permanent as a temporary tax hike, Illinois' problems will not disappear even when tax revenues return to pre-crisis levels. Mounting state liabilities to its richly compensated public employees are not going to go away with the economic downturn. Indeed, no matter what happens in the next few years, the state's massively underfunded public pension system alone (called the worst in the nation by the Pew Research Center) will give an already bloated budget hunger pains for years to come.


David Godow is Research Assistant


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