We Want Something Else

The editors of the Chicago Tribune are dismayed at the pool of candidates for Illinois governor:

On Jan. 19, six Democratic candidates for governor met with the Tribune Editorial Board seeking our endorsement in the March 20 primary. Days later, we met with the two Republican candidates, Gov. Bruce Rauner and state Rep. Jeanne Ives. The Democrats responded to our questions by acknowledging the perilous fiscal condition of state government and Illinois’ weak jobs economy. They were not in denial. Good. But neither did they animate us with their strategies to confront the state pension crisis, and Illinois’ onerous tax and regulatory burdens.

Those are the realities that give Illinois its reputation for being unfriendly to employers. From what we heard, the Democrats mostly see more tax revenue, in the form of progressive income tax rates, as the solution for the fiscal problem. They don’t have a compelling plan for job growth. Not good, and not good.

Rauner and Ives appeared more eager to reform state finances and lure employers. They understand that Illinois needs more taxpayers. That said, their ability to strategize is hamstrung by the fact that Democrats have an iron grip on the legislature. Ives said she believes she’d be able to cut deals on spending issues. She also believes she could win support to shift new government employees to a 401(k)-style retirement plan, which would provide some relief to the pension crisis. Rauner is gambling on two federal court cases that would loosen the power of unions and make Illinois more friendly and flexible to business.

All of these proposals fall short of what’s needed to restore Illinois to reasonable fiscal health. Not to put too fine a point on it but the Democrats are living in a fool’s paradise. Individuals and businesses are already leaving Illinois in alarming numbers, taking jobs and income with them. Ultimately, the reason for that may be uncertainty but proximately the reasons are rising taxes and the heavy regulatory burden. Attempting to solve the problems by increasing taxation alone creates a vicious circle of rising taxes and declining tax base. I would add that any candidate who says he or she will impose a graduated state income tax is lying. That would require amending the state’s constitution and there are just not enough votes for that.

But the Republicans have a fool’s paradise of their own. The Democratic leadership will never willing accept a 401(k) pension scheme for public employees. And, as is obvious from Rauner’s experience, the Democrats are completely unwilling to compromise. Their correct calculation is that all they need to do is wait. I never believed that Rauner’s program would do much to heal Illinois in the near term but I thought it was worth a try and that Democrats should have at least given him something.

In my view the only practical solution for Illinois is what is blandly referred to as “shared sacrifice”—slight increases in taxes and substantial decreases in spending and the regulatory burden. Decreases in spending can only be accomplished by cuts in public employee payrolls (numbers, pay rates, or both), tightening Medicaid eligibility requirements, and reforms in public pensions (changing the formula for new employees, eliminating “double dipping”, etc.)

Chocolate cake is a much easier sell than broccoli so no politician will ever propose such a program.