The news coming out of the state capital in Illinois slowed following the impeachment and removal of disgraced Democratic Gov. Rod Blagojevich. But a proposal from newly installed Gov. Pat Quinn to dramatically increase tax rates has put the spotlight back on Springfield.
It turns out that Blago is Illinois’s very own Cassandra. He predicted that the state’s Democratic leaders would push for a massive tax hike if he was removed from office, and he was spot on — even if taxpayers didn’t want to believe it.
Quinn, Blagojevich’s one-time lieutenant governor, is seeking to close a growing budget deficit by increasing the state’s personal income-tax rate by an incredible 50 percent. He’s expected to receive support from the state’s General Assembly, where both chambers are controlled by his fellow Democrats.
Many observers are stunned by the low income levels at which the tax hike would take effect. Even with a higher personal exemption, a single taxpayer making as little as $14,000 would see a tax hike. Couples making more than $28,000 also would have to pay more in taxes, as would families of three earning in excess of $42,000.
And Quinn’s plan doesn’t just hike personal income taxes. It also would increase the state’s corporate income-tax rate (making it the fourth-highest rate in the nation) and elevate taxes on cigarettes and automobile-licensing fees.
At the same time, Quinn intends to continue the state’s reckless spending streak.
Spending in Illinois has skyrocketed in recent years — up approximately 45 percent per capita since 1998, even though the state’s population has grown a mere 4 percent during the period. Yet Quinn says proposals for significant spending cuts are “mean spirited,” all while calling for new and needless expenditures. The governor’s 2010 spending blueprint is laden with pork, including $150,000 for the state’s grape and wine industry, $71,200 for the horseracing and breeding industry, and $500,000 for mosquito abatement.
Quinn is seeking to reduce some costs by asking state workers to contribute more to their employee health-care and pension plans. But unions like AFSCME and the Illinois Education Association are howling at any benefit changes. The Illinois Federation of Teachers even has threatened to withhold its endorsements from politicians who support this pension reform.
So rather than less spending in the name of fiscal responsibility and lower tax rates in the name of economic growth, Illinois is headed in the opposite direction. It’s a proven formula for economic disaster.
The Tax Foundation estimated that Quinn’s plan will sink the state’s “business friendliness” rating from the nation’s top half to the bottom half. Scott Moody, a tax-policy economist, said Quinn’s income-tax hike will cost the Illinois economy $8.6 billion in lost economic output. According to Moody, “this is equivalent to taking the state’s 2008 revenue from its sales, cigarette, liquor, inheritance, corporate franchise, and insurance taxes and dumping that money into Lake Michigan.”
This is devastating news for a state that already ranks 44th and 48th, respectively, in terms of its economic outlook and performance, according to the ALEC-Laffer state economic-competitiveness index. Should Illinois increase its historically low income-tax rates, it would forfeit one of the best incentives for people to live and work in the state.
Of course, Pat Quinn is not alone in prescribing the wrong fiscal formula at exactly the wrong time. Governors including Jan Brewer of Arizona and Beverly Perdue of North Carolina also are calling for significant tax hikes during an economic downturn, while California Gov. Arnold Schwarzenegger just signed $13 billion in new tax increases into law.
California congressman Tom McClintock sees the writing on the wall. He noted in a March 17 Orange County Register commentary that his state’s economy went into a nosedive in 1991 — even as the national economy expanded — after then-Gov. Pete Wilson imposed a record $7 billion tax hike.
Back in Illinois, Rod Blagojevich has taken to the radio airwaves to blast Quinn’s tax-hike proposal. But will anyone believe Blago when he calls it “unconscionable” to raise taxes by 50 percent, “especially at a time when people are hurting and the economy is in shambles”?
Hopefully Illinois lawmakers can look past the messenger and heed his message.
– Kristina Rasmussen is executive vice president of the Illinois Policy Institute.