Illinois' new income tax increase, while pilloried by critics as enormous and destructive, is actually relatively modest. The state's budget deficit, on the other hand, is not. If lawmakers don't make more deep and painful cuts or raise additional revenue this spring, there's no way Illinois will be able to balance its budget fully in FY 2012, much less make necessary investments in the state's human and physical infrastructure. Take a look at this instructive graph produced by the Institute of Government and Public Affairs and published by the Capitol Fax this morning. It shows that while the temporary tax measure dramatically improves Illinois' budget situation, it still leaves in place a roughly $5 billion gap:

Why is that? The final package is expected to raise about $6.5 billion next year. That will give state legislators new cash to close our annual structural deficit, the difference between what Illinois' inefficient tax system takes in and what the state needs to pay. It will not, however, generate enough tax receipts to pay off the backlog of overdue bills it owes to social service providers, hospitals, schools, and other state vendors.

To be sure, there are options lawmakers could exercise to help clean up this mess. The most obvious is approving an $8.75 billion borrowing package favored by progressives and Gov. Pat Quinn that would be used to erase the backlog immediately. While it failed to garner enough support before the end of the veto session, and lost some lame-duck backers, Illinois Senate President John Cullerton (D-Chicago) has already reintroduced the bill (SB 2) for consideration this spring. And a portion of the revenue from the tax hike was earmarked to repay that loan over the next 14 years. Leaders of Illinois' social services agencies, which the state has treated as involuntary lenders for months and which could not see serious relief for many more, called on the legislature to act today.

Reforming how Illinois taxes services could benefit the state going forward, too. Currently, discretionary services -- think health club memberships, pet haircuts, and limousine rentals -- are not taxed here. These types of expenditures now make up roughly 44 percent of all transactions statewide and are largely consumed by economically stable families. On the other hand, a 5 percent surcharge is slapped on goods like clothes and school supplies that all citizens need. The Center for Tax and Budget Accountability estimates that expanding the base to include most consumer services, a progressive move endorsed by tax reformers and credit rating agencies, would generate $2.4 billion per year in recurring revenue. The state could still bring in $1 billion if we started taxing discretionary services and reduced the overall sales tax rate from 5 percent to 3.25 percent. Meeting with the Crain's editorial board today, Chicago mayoral candidate Rahm Emanuel urged the General Assembly to make such a change. It's a bit late, given the debate that took place in Springfield last week, but a good idea nonetheless.