PI Original Adam Doster Monday June 15th, 2009, 11:49am

A Reminder: The Worst Is Yet To Come

Illinois' $12 billion budget hole didn't materialize out of thin
air, but the brutal economic climate at the national level certainly
intensified the problem. According to data from the National Conference
of State Legislators, receipts for personal income taxes (6.3 ...

Illinois' $12 billion budget hole didn't materialize out of thin air, but the brutal economic climate at the national level certainly intensified the problem. According to data from the National Conference of State Legislators, receipts for personal income taxes (6.3 percent) and corporate income taxes (4 percent) each declined during the first 10 months of the current fiscal year. And sales and use taxes were also down by 5.3 percent. The bottom line is that in 2009, Illinois didn't take in nearly enough money to cover its costs. Our low, flat-rate income tax system (Illinois is ranked 45th in tax burden as a percentage of income) is a huge part of the problem.

As lawmakers attempt to reach common ground on a budget solution, they need to be reminded of a simple fact: Recessions tend to hit the states later, so the worse may be yet to come. Stateline has more on what this could mean for Illinois over the next year:

While 2009 is bad, states worry 2010 and beyond will be even worse. Even if the national recession ends this year as many predict, the outlook for states is bleak. State fiscal conditions historically lag behind national economic recovery. The year after a recession ends is typically when state budgets are hit hardest, because by then, Medicaid rolls have swelled with the higher numbers of the unemployed who have lost their health insurance.

This is not a problem that can be magically erased overnight. Demand for state services will inevitably increase this year and there is no guarantee that tax receipts will rebound. To make matters worse, federal stimulus assistance will run out quickly. Because of current shortfalls, educators in Illinois will burn through all of the state's recovery package resources next year, leaving no stimulus money left for 2011. Then, the state's underfunded education system will be back at square one.

Republicans keep asking Gov. Pat Quinn to implement economic reforms before any tax hike is passed, yet their proposals won't actually save a significant amount.  The band-aid put forth by House Democrats -- a temporary income tax hike -- didn't garner enough support to pass. Meanwhile, the Senate Democrats approved a bill before the session ended that would make the tax system fairer and more sound, provide property tax relief, invest more in education at all levels, and allow the state to pay its bills on time.  The House never took it up for a vote.

Sometimes the boldest move also makes the most sense politically.  Our elected officials would do well to remember that at this moment.

Image used under a Creative Commons license by Flickr user sterno74.

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