An Ironic Reaction to the Illinois Tax Increase

It is clear that Illinoisans have not embraced the hard-won 2011 state income tax increase. Media outlets have published and aired numerous reports about the “failure” of the tax increase. Constituents have voiced their displeasure at in-district legislative meetings. Businesses have threatened to leave the state.

For those of us who worked for the tax increase, these reactions come as no big surprise. We knew that the tax increase alone would not solve all our financial problems. Illinois still has a substantial deficit, and continued funding cuts are decimating essential human services across the state. Lutheran Social Services of IL has just reported that 2,000 fewer people will receive addiction recovery services this fiscal year, and Heartland Alliance for Human Needs and Human Rights recently announced a 20% reduction in its workforce.

The irony is that the tax increase is working.

In its October Issue Bulletin, Voices for Illinois Children, one of PCG’s advocacy partners, stipulates that “the state income tax increase enacted last January was an essential step toward resolving the prolonged fiscal crisis in Illinois, but it was no panacea.”

The Voices report goes on to say that the new revenue—an estimated $2.3 billion in FY2011 and $7.4 billion in FY 2012—has enabled the state to stabilize its credit rating, reduce the backlog of unpaid bills, cover mandated pension contributions for FY 2012 without borrowing, and avert a full-scale fiscal meltdown.

The tax increase—together with significant spending cuts—has substantially improved the state’s fiscal condition. Illinois has a projected General Funds balance of $360 million for FY 2012. At the same time, the state still has a carryover deficit of $4.6 billion from previous fiscal years, leaving a cumulative deficit of $4.2 billion. Without the new revenue, the cumulative deficit would be almost $14 billion—more than three times as large as the current projection.

PCG, in concert with Voices and other members of the Responsible Budget Coalition, will continue to promote the benefits of the tax increase. We will also urge the General Assembly to adopt budget solutions that reflect shared responsibility and avoid further damaging cuts. We will advocate for the debt-restructuring authorization that will make it possible for Illinois to catch up on long-overdue payments to schools, local governments and health and human service providers. Reducing the enormous backlog of back bills will improve the state’s cash flow, thereby allowing the state to pay current bills on time, avoid more cuts, and, in the long run, increase its fiscal health.

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