With only five days to go before the clock runs out on the current legislative session, leaders in both the Illinois Senate and House are still short of the votes needed to pass a tax increase. As Speaker Michael Madigan's spokesman Steve Brown tells the Tribune, "If you really want to wait until after May 31 for a tax increase, the hopes of that pretty much goes out the window." What's obvious is that there is no way to cut our way out of this $12 billion deficit and the responsible fix is to raise the income tax rate -- one of the lowest in the nation -- while simulataneously offsetting the burden with targeted tax relief for homeowners and low-income households.

The consequences of failing to find new revenue were made clear when Gov. Pat Quinn released his "slash and burn" budget last week. While lawmakers may have a legitimate gripe with the last-minute timing of Quinn's tactic, the reality is this: If they don't approve significant revenue enhancements before the session ends on Sunday, many of the state's neediest residents will bear the brunt of the resulting cuts, losing access to home care, childcare, and other crucial state-backed programs.

Larry Joseph, a budget and policy expert with Voices For Illinois Children (VFIC) has been doing his part to make this point.  In a new report (PDF), he writes that "those who want 'spending cuts first' are either ignoring fiscal realities or asking the state to abdicate its social responsibilities."  As he explains in the passage below, only about $4.2 billion of the $30.7 billion FY 2010 budget is really open to cuts and the underlying programs are much-needed:

The proposed budget contains $30.7 billion in GF [General Fund] spending. Elementary-secondary education, higher education, and Medicaid, which account for about $17 billion, are largely protected by the [federal stimulus bill's] State Fiscal Stabilization Fund. Various other programs (about $1.2 billion) are also tied to federal grants. Pension contributions, debt service for pension obligation bonds, and employee group insurance account for another $3.1 billion. Statutory transfers — which mostly consist of revenue sharing with local governments and debt service for general obligation bonds — amount to $2.3 billion. The General Assembly would probably be reluctant to cut funding for the Department of Corrections ($1.2 billion), Department of Children and Family Services ($900 million), Department on Aging ($620 million), and Department of Juvenile Justice ($125 million).

All these items total more than 85 percent of the GF budget. The remainder is about $4.2 billion — close to the amount of new state revenue recommended by the Governor. The bottom line is that without increased revenue, there would be no money left for the rest of the GF budget. This would include most programs in the Department of Human Services: mental health services, developmental disability services, home care services for people with physical disabilities, community health programs, and youth services. “Zero funding” would also apply to the Department of Public Health, the Department of Veterans’ Affairs, the Illinois State Police, and the Illinois Mathematics and Science Academy, as well as all state constitutional officers, judicial agencies, and the General Assembly.

Joseph also warns that failing to pass a large enough tax increase this time around will mean more problems not too far down the road:

Revenues from federal [stimulus] funds are temporary. By the end of FY 2010, Illinois will have spent its entire allocation from the State Fiscal Stabilization Fund, and the enhanced federal matching rate for Medicaid is in effect only through the middle of state FY 2011.

We cannot assume that economic recovery and renewed revenue growth will quickly produce balanced budgets. [...]  According to recent projections, state tax revenue in FY 2009 will be about 7 percent lower than the previous year and will decline another 7 percent in FY 2010. It is likely to take several years for revenues to return to FY 2008 levels.

Joseph goes on to offer two alternative budget frameworks that would raise more revenue than Quinn's plan, while providing targeted tax relief.  As the chart below shows, Quinn's plan raises $2.8 billion by hiking the income tax rate from 3 percent to 4.5 percent and raising the personal exemption from $2,000 to $6,000.  Joseph's "Plan A," by contrast, would generate $4.9 billion by increasing the income tax rate to 5 percent, raising the exemption to $3,650, increasing the state's Earned Income Tax Credit (EITC) from 5 percent to 15 percent of the federal benefit, and creating a state-level Child Tax Credit.  "Plan B" would raise about $100 million more by scratching the Child Tax Credit, raising the state EITC to 20 percent of the federal benefit, and bumping the exemption to $4,000:

Mind you, as we write this, the ground is moving under our feet.  Yesterday, Quinn agreed to alter his original proposal by increasing the personal exemption to only $3,000 and doubling both the property tax credit and EITC. Even with these revisions, the governor's latest revenue plan would still generate less -- roughly $3.7 billion per year -- than Plan A and B above. At the same time, Sen. Rickey Hendon has also released a proposal very similar to SB 750, Sen. James Meeks' school funding reform proposal, which Senate President John Cullerton says is still on the table. 

To see how the current spread of budget proposals would affect your own tax bill, head on over to Wonkish's calculator on Capitol Fax.  And stay tuned for more news from Springfield.