We are facing a budget crisis in Illinois. Not like several months ago, before the legislature increased the state income tax. Then we were trying to determine if our state could remain solvent. Now we must decide whether we have a soul.
It is a crisis because Illinois is on the verge of cutting cash assistance to needy families and children, small monthly grants to some homeless people, drug addiction treatment, mental health services, and those who need home health care.
It is a crisis because time is running out. Both the senate and house appropriations committees will have presented their recommendations by the end of this week. The General Assembly expects to approve a budget by May 31.
It is a crisis because these cruel measures could be avoided. There are ways alternative to these and other cuts that would make a bottom-line difference of over $2.5 billion, at least equal to the draconian cuts the legislature is considering.
Two recommendations seem straightforward. First, we could use accurate revenue estimates. The nonpartisan Commission on Government Forecasting and Analysis (COGFA) has an impressive record for accuracy. The revenue estimates used by the Illinois House are based on a political compromise between Democrats and Republicans. Making important budgeting decisions without solid numbers could cause great harm. Using the COGFA estimates would avoid over $1 billion in cuts.
Second, the state could “decouple” from the federal rules being offered for business depreciation. The federal tax compromise in December allows businesses to deduct the entire cost of capital investments in machinery and equipment between September 2010 and December 2011 at one time rather than depreciating over several years. This is a “bonus” to businesses at great cost to states. Given a similar choice, the Illinois General Assembly voted to “decouple” during far better times in 2002; we should avoid a revenue loss of $600 million by doing so again now.
Difficult as these choices may be for some, two other measures are much harder. They raise questions of fairness and the need for shared sacrifice. Let’s start with the fact that many of us pay no sales tax on luxury services.
Twenty states, including Wisconsin and Iowa, tax services from health clubs, tanning parlors, and reducing salons. Not Illinois. Our state has no tax on marina slots, limousine rentals, landscaping; interior design services; golf courses and country clubs; sports teams; chartered air transportation; or warehousing and storage costs. Most states obtain revenue from at least some of these services. Illinois taxes none. If we taxed these, along with other higher-end services, the state could bring in over $700 million per year.
Finally, we must consider taxing retirement income in Illinois for those with higher incomes. Right now we are one of only four states that exempts pensions, annuities, and Social Security benefits from a broad-based income tax. Limiting retirement income tax breaks for those with adjusted gross incomes of $100,000 and above would generate at least $575 million.
We have lost our moral compass. At the federal level, we are seriously considering more tax breaks for the very wealthy even as we restructure basic support for the ill, the unemployed, and the elderly. In Illinois, we have our own version of the same choices. We can pursue the measures that would enable us to avoid service cuts to those desperately in need. Or we can ignore these alternatives, losing our collective soul in the process.