Much of the discussion of Illinois’s fiscal problems in response to my post yesterday dwelled on increasing Illinois’s personal income tax. Illinois can’t solve its problems by increasing its income tax. It can’t solve its problems by increasing revenues period. The numbers just don’t support it.
Illinois has a total budget of $26 billion and a shortfall of $13 billion. In other words to meets its obligations the state would need to double revenue. Here’s the breakdown of Illinois’s state tax revenue:
Presumably, it’s obvious that you can’t double revenue even by doubling income taxes let alone by increasing them by 25 or 30%. Not mathematically possible. Can we double revenue at all? Very doubtful. Doubling the state’s revenue would mean that Illinois would have the highest ratio of taxes to personal income in the nation. The other states with very high ratios (Alaska and Vermont) are distinct cases with conditions that Illinois just doesn’t enjoy. If Illinois doubles its tax rates it won’t realize twice as much money—anybody who can will either leave the state or manage their income in such a way as to avoid the tax.
There’s a desperate problem on the expense side, too. Half of Illinois’s budget is devoted to healthcare and pensions. Not only are these two items the largest budget items, they’re also growing the fastest, expected to increase by 10% year-over-year for the foreseeable future. It can’t constitutionally reduce pensions. Suggesting that Illinois amend its constitution to allow it to cut pensions is dreaming: both houses of the Illinois legislature are dominated by Democrats and public employees are among their core constituencies.
If you need a reason for my continual harping on cutting healthcare costs, that’s a sufficient one.