5/15/2007 10:22:00 AM Guest column Few options left to deal with tax, spending issues
By Rep. ROGER EDDY For the Daily News
The biggest news in Springfield this week was the House Committee of the Whole hearing regarding the governor's proposed gross-receipts tax and the vote the following day that pronounced unanimous opposition to the plan.
The governor testified before all members of the House on Wednesday to defend the merits of his record $7.6 billion tax-increase proposal. His appearance and pleas for support reminded me of the joke about the captain of the Titanic rearranging the furniture as the ship was sinking. After listening to his testimony, I was almost certain his sales pitch hadn't changed any minds. By Thursday morning, my presumption was confirmed.
A few hours before the vote on the non-binding but politically embarrassing resolution stating the House's opposition to the GRT, the governor went so far as to issue a press release urging members to vote against his own proposal! I suppose that sensing his plan faced total defeat, he was trying to prevent the obvious embarrassment he was about to suffer.
No matter how the governor or his spokespeople try to spin the vote, the fact is that the House flatly rejected this plan. Some members on the Republican side of the aisle even had placards reading "No Means No, Governor." He should have known better than to think that any plan starting with "Gross" and ending in "Tax" would ever stand a chance. In its original form, the governor's record-setting tax-and-spend proposal was the single worst possible solution to the budget problems facing Illinois.
In the past four years, Illinois government has dramatically increased spending. Some of the extra spending has expanded health care for children and added money to help fund education. Some defend these increases as absolutely necessary. But the reality is that a big chunk of the new spending was completely unnecessary, and in some cases was offered to Democrat members of the General Assembly in order to buy votes for bad budgets.
During those years, the revenue to fund these new programs came from new fees on business and industry, millions of dollars of raids on dedicated funds, selling state assets, borrowing in record amounts, and a multi-billion dollar raid of the state's five pension funds. These types of revenue sources have been depleted and additional borrowing without the revenue to make payments is no longer possible and as a result, Illinois now has the worst funded public pension system in the nation. I have warned in this column many times that eventually the runaway spending of the past few years would necessitate some type of tax increase or cuts in spending for some of the new programs. That day has come.
Even the governor admits that we only have a few choices. First, he states that we can accept his plan (the GRT). At this point, it is obvious this option has been soundly rejected. A second option, he says, is adopting a "do-nothing" budget. For FY 2008, the natural growth in revenue in Illinois is estimated to be around $900 million. A "do-nothing" budget would spend that $900 million. The problem is that about $600 million is needed to make additional payments to the pension fund since scheduled payments were hijacked the past two years to pay for the new programs that now must be maintained. If $600 million of the $900 million in new revenue is needed for past spending, that means there would be around $300 million available to fund new and existing programs in FY08. Again, the real problem is that new spending for AllKids, a backlog of Medicaid payments due to health care providers (some say about $2 billion), and other cost-of-living increases are not covered by the $300 million. That means cuts to government services and no new money for education. It also means we would not catch up on the state's backlog of bills to medical providers.
A third option being discussed is to raise income and sales taxes to provide money to close the state's structural deficit created by new programs. The revenue raised would provide cost-of-living increases for a multitude of state programs, increase funding for schools, and even further expand health care. This would be a pared-down version of what the governor proposed regarding expansions in health care coverage and school funding.
The current proposal, found in HB 750, increases the state income tax from 3 percent to 5 percent on individuals and from 4.8 percent to 8 percent on corporations. It also greatly expands the number of items we pay sales tax on to include most services. Some economists argue that since the service sector is the fastest-growing segment of the economy, we need to start taxing more services. The current proposal also contains a property-tax relief component. The actual property-tax relief might be around 12-15 percent of an individual's property-tax bill. The actual amount of relief depends on many variables, though. In fact, if the value of an individual's property increases very much, the relief may be very little and would certainly be short-lived.
HB 750 does provide record funding increases for education. It also contains an accountability component that would institute reforms aimed at increasing student performance and financial accountability. Schools in rural areas would benefit tremendously from the increases proposed to the foundation level that are contained in HB 750 and special education would also receive much needed increases in funding.
If this alternative is considered, the governor has said he will veto it and never support an income- or sales-tax increase to solve Illinois' budget problems. That statement by the governor makes such a plan very hard to pass without a veto-proof majority. HB 750 does not have even close to that kind of support yet.
Meanwhile, the General Assembly has not yet addressed the most pressing crisis we face: There is no solution to the electric rate increases people are experiencing. We are paying $3-plus a gallon for gasoline and many think that price could rise even more this summer. In the face of these types of cost increases for people, can the General Assembly even think about raising taxes and increasing spending either through GRT, income, sales or any other kind of tax?
Let me know what you are thinking, E-mail me at email@example.com; write to me at Box 125, Hutsonville, IL 62433 or call us at 618-563-4128. You can also keep up with important issues at my Web site (now with audio clips), www.peopleforeddy.com.