Our ever-worsening budget problem
Monday, Dec 7, 2009 - Posted by Rich Miller
* This is just a small example of how the state budget deficit is hurting employers…
More than $80 million [in state reimbursements] is owed to 259 agencies surveyed by Metro Chicago United Way during the last fiscal year, which ended June 30.
Sixty percent of the groups surveyed said they will be forced to reduce or freeze the number of people they serve. More than 10 percent of the agencies anticipate that they will be forced to temporarily or permanently close locations because of less state funding.
And the problem is only going to get worse.
* Mike Lawrence looks at pie in the sky promises by the various gubernatorial candidates and attempts to inject a little reality…
Assume we freeze tax rates and a robust recovery produces revenue growth of 7.79 percent from the sales tax, 13.2 percent from the personal income tax and 41 percent from the corporate income tax — all of which would match spikes over the last quarter century. The yield would be $2.4 billion, only 20 percent of the deficit.
Illinois revenue experts consider even that scenario wildly optimistic. None of those categorical high points occurred in the same year. Moreover, the generally prosperous 1990s produced annual growth of 6.3 percent from the sales tax, 8.1 percent from the personal income tax and 11.1 percent from corporate and business taxes.
The idea, espoused by several Republican candidates, that if we somehow bring back prosperity our budget problems will disappear is mostly nonsense. You’d think, therefore, when a candidate claims he can balance the budget by slashing tax rates in half that he’d be challenged a bit by the interviewing reporter. Nope…
Republican gubernatorial candidate Dan Proft visited Edwardsville recently, pledging that, if elected, he would cut the state income tax by half, cut the corporate tax by half and eliminate the estate tax.
And speaking of the economy, Andy McKenna has joined other GOP candidates on the minimum wage issue…
Cutting Illinois’ minimum wage is increasingly becoming a key proposal by Republican candidates for governor as they push ideas to help the state’s economy.
Voters are not likely to hear that in campaign mailers or TV ads, but when pressed for their plans on job creation, several GOP candidates turn to reducing the lowest amount employers are allowed to pay workers.
The latest entry to the fold is Andy Mckenna, a Chicago business owner and former head of the Illinois Republican Party. He told WBBM’s At Issue program on 780 AM Friday that Illinois’ high minimum wage, which is nearly $1 more than the federal limit, “is a problem.” […]
Other Republican candidates to support reducing the minimum wage include former Illinois Attorney General Jim Ryan of Elmhurst and Hinsdale businessman Adam Andrzejewski.
I didn’t hear the “At Issue” program over the weekend and WBBM hasn’t yet posted it on their website, but maybe we can listen later.
* Related…
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- Captain Flume - Monday, Dec 7, 09 @ 10:29 am:
Why do we continue calling what candiates say they will do if elected “promises”? What they say may be assertions, but certainly not promises. We continue to make fools of ourselves, and liars of the candidates, by mis-using that word. And the candidates make fools of us as they know full well the assertions may be largely unfulfillable.
- wordslinger - Monday, Dec 7, 09 @ 10:35 am:
Employers aren’t holding back hiring because they’re worried about that extra buck on the state minimum wage.
They’re holding back because business is bad, credit is tight and, in many cases, they don’t want to add to their healthcare costs.
Geez, the minimum wage. What’s next for the GOP, fluoride in the water is a commie plot?
- Burrito Bandit - Monday, Dec 7, 09 @ 10:36 am:
It is the holiday season for crying out loud. The legislature dwiddles its thumbs on map grants, ethics reform, transit funding, now people can’t even sit down to get this right. Enough already. It is the holiday season, snow is on the ground, there is an increasing demand for social services and we get this. How sad. Dan Hynes is playing politics. What next, have a fight for the next week or two, blame each other, then borrow the money anyway. When are providers going to see their checks??? How sad.
- shore - Monday, Dec 7, 09 @ 10:40 am:
The republican party here and nationally needs to find things other than tax cuts and reduced spending to talk about. Partially because even I as a republican don’t trust my party at all anymore after the hastert/bush debacle and partially because I am not sure just cutting taxes will make everything work out ok. McKenna’s talking about spending now but I don’t recall him hitting bush or hastert when he was running for senate or party chair for their spending.
Some of you went after me last week for knocking hamos on her little womens abuse ad, but I keep reading this blog posts like this and I keep reading about red ink and keep wondering why if this is the biggest issue in the state and she’s been down there forever why she hasn’t fixed the problem. She takes no accountability for her actions like her pal, Team America’s favorite democrat and hopefully she’ll be held accountable.
- Scott Summers - Monday, Dec 7, 09 @ 10:44 am:
They’ve gotta be kidding.
Improve the Illinois business climate — by cutting the minimum wage.
That’s what Jim Ryan, Adam Andrzejewski, and Andrew McKenna are saying.
The Illinois minimum wage of $8.00 per hour (scheduled to increase to $8.25 next July 1st) is higher than the federal minimum of $7.25. Reduce the Illinois rate to the federal level and voila!, stimulate business!
So this is their plan for prosperity?
Making poor people poorer?
They’ve gotta be kidding.
Call them “The Three Scrooges”.
Okay, let’s pick the Scrooge fallacy apart. Let’s count some beans.
How does the Illinois minimum wage stack up against federal poverty guidelines?
Forty hours per week times fifty-two weeks per year equals 2,080 hours. 2,080 hours times $8.00 per hour equals an annualized gross of $16,640.
Poverty rates for 2009 range from $10,830 for an individual to $18,310 for a family of three.
So in other words — an individual working full time to support a family of three at the oh-so-generous Illinois rate FALLS BELOW THE POVERTY LINE!
Talk about vicious. Talk about stupid.
And talk about gall. The Three Scrooges would deliberately grind people deeper into poverty.
Perhaps they might achieve some ephemeral “success” by creating a bit of business activity at the margins. But their legacy wouldn’t be economic growth. Rather, they would succeed only in fostering economic dislocation.
And as the Scrooges-induced dysfunction compounded, they’d generate — and palm off onto the rest of us — significant additional expenditures. Taxes would have to be increased to pay for more Medicaid. And food stamps. And unemployment. And welfare.
Far more debilitating — and cruel — would be the social costs inflicted by the Three Scrooges. Hunger. Health. Homelessness. Hopelessness.
The way out of our humbugging economic hole here?
It’s through capital investment, all right.
But there are two types of capital. Financial. And human.
And human capital is the key.
Literally and figuratively — employees pay dividends! They’re NOT costs!
Let’s not Scrooge one another.
May we grow our businesses by enabling and ennobling and empowering our workers — not by impoverishing them.
May we always cultivate in one another the dignity — DIGNITY — of work.
And may we forever have the courage — and heart — to pay one another a living wage!
- cassandra - Monday, Dec 7, 09 @ 11:02 am:
Many members of the middle class are in the same economic boat as the social agencies. They are living off credit cards and savings while waiting for the economy to improve. Many are unemployed, about to be, or coming off a long period of unemployment. Their new jobs pay less than their pre-recession jobs. Benefits are fewer or more expensive. No pensions, and they can’t afford to put money in defined contribution plans.
Taxing the former more to bail out the latter is not a solution, despite Quinn’s obsession with
this one solution to Illinois’ budget problems.
He’s the one politician in Illinois who doesn’t seem to have heard about the collapsing middle class.
- Joe from Joliet - Monday, Dec 7, 09 @ 11:11 am:
The ones saying “cut the minimum wage” are those that do not have a chance of winning a primary and are just looking for anything that gets their name in the media. The only people who react to that are those who want to paint an entire party with an individual’s rant.
We’re all the same. Right, Word?
- CircularFiringSquad - Monday, Dec 7, 09 @ 11:18 am:
Cut the minimum wage —-8×40= a whopping 320. How many of those jobs does one need to pay the rent. That sure seems like a plan that will appeal to Ds and Indies. NOT
Meanwhile the Proft one liners keep his firm hold on GOP Stand Up King in tact.
Capt Fax question …when will the real media start calling the Idea Free Zone (our IL GOP party) ticket out on their nonsense?
- Fan of the Game - Monday, Dec 7, 09 @ 11:24 am:
While I oppose a mandated minimum wage in principle, you can’t cut it, and cutting it would not be a panacea for the ills of our economy. However, the business climate in Illinois IS bad, and high business taxes–especially our Workers’ Comp insurance rates–do not help.
But this is what happens when you have a service-oriented economy and many of those social services are funded in whole or part by tax dollars. I would be interested to know how many manufacturing businesses and jobs Illinois has lost in the last decade and compare that to the number of social service positions that have been created.
- Steve-O - Monday, Dec 7, 09 @ 11:40 am:
What I’m most disappointed in with the GOP candidates is a lack of a plan for balancing the budget. The Democrat candidates have no plans to balance the budget, and want a tax increase to stem the tide a little.
Of the 7 GOP candidates for governor, the only one I’ve seen present a detailed plan for balancing the budget is Andrzewski, who has proposed over $11bil in spending cuts.
So, all of the GOP candidates, except for Andrzewski, must share the democrat plan: tax hikes. If you’re not for spending cuts to balance the budget, then the only alternative is raising taxes.
- OneMan - Monday, Dec 7, 09 @ 12:00 pm:
Before you all just dump on the Republicans I would like hear what the democratic majority (remember you don’t need us to do jack statewide) have done to make anything better?
As for the budget, sorry gang at this point it is going to take the social service/education apocalypse to make anything happen. You are going to need people to die and a state university or some schools to shut down. Only way anything is going to happen. Is that really sad, yes…
- Easy - Monday, Dec 7, 09 @ 12:05 pm:
Perhaps more importantly, what are the chessmaster and Gov Quinn going to do next year when they are actually in office and can effect change? Haven’t heard a whole lot from the chessmaster about the plans to get out of the mess he helped create.
- TaxMeMore - Monday, Dec 7, 09 @ 12:32 pm:
Rich, so why don’t reporters also question Democrats proposals to raise taxes that also are completely nonsense?
Cullerton is running around lying about tobacco taxes right now without a word from media.
$760 million revenue in 2004
$540 million revenue in 2009
Cullerton is claiming ANOTHER tobacco tax increase will bring in more money? What is he smoking and how much have the liberal reporters been paid off to ignore obvious history?
Make Stroger and Daley reduce the highest tobacco tax in the US and state tobacco revenues will INCREASE! Tack an even higher tax in Cook and CHicago, and the state revenue will continue to decline forcing non-smokers to make up the difference.
The last tobacco tax hike the Chicago Democrats gouged human beings with cost non-smokers $220 million in lower state revenues this year. Why don’t reporters ask Republicans tough questions? Why don’t they ask ANYONE tough questions?
- Bill - Monday, Dec 7, 09 @ 12:37 pm:
==Team America’s favorite democrat==
You must mean mark kirk.
- state employee - Monday, Dec 7, 09 @ 12:46 pm:
@ Scott Summers
Thank you. I work for welfare in Chicago and many, many of my clients are in min-wage jobs. Not only are they hard-working, good people supporting their families, but THEIR HOURS ARE BEING CUT RIGHT NOW TO 10-24 HOURS PER WEEK. Very, very few people (I can’t think of any out of my 1,100+ in my caseload), are working 40 hours per week.
ps to all the scrooges out there, I’m on lunch break right now, using my own time to comment here.
- concerned citizen - Monday, Dec 7, 09 @ 12:51 pm:
The state of IL needs to get a
progressive tax structure, like the civilized and humane states,
and have more fair tax burdens, higher rates on higher-earners and stock transactions.
3% flat tax is 40 years out of date and burdens those least able to pay.
Also only 1/3 of business (big business) in IL pay taxes (federal or state).
BCBS pay taxes in IL? Does anyone know???
- John Bambenek - Monday, Dec 7, 09 @ 12:51 pm:
How about we balance the budget with this revenue enhancer: establish a license fee proportion to the “level” of office for anyone seeking to run for election.
- OneMan - Monday, Dec 7, 09 @ 12:57 pm:
concerned citizen
If you want to raise the basic deduction and increase the rate, fine.
But a progressive tax is a really bad idea in this state. Do you think once they got that ability down in Springfield they wouldn’t use it to soak the rich. please.
Raise my rate to 4.5% fine. But a progressive tax would be a huge mistake and the framers of the state constitution were right on the mark with preventing that.
- concerned citizen - Monday, Dec 7, 09 @ 1:01 pm:
One Man,
I disagree. It is the best solution. “Soak the rich”? Please, they’ve been like robber barrons over the last 30 years in this state, b/c of tax breaks and decreasing tax rates on them, compared to the working, (used-to-be) middle class, and poor.
Look at stats on the wealth gap between the top 1% and the rest of us, the especially the top .1%. They have something like 90% of the wealth.
- TaxMeMore - Monday, Dec 7, 09 @ 1:01 pm:
A $25,000 basic deduction should be a no-brainer. Everyone in the US should be allowed to earn up to $25,000 per year without having to pay any labor taxes. Taxing the poor is counterproductive and hurtful.
- OneMan - Monday, Dec 7, 09 @ 1:14 pm:
cc
An the state government is the best party for wealth redistribution? This state government? Really?
tell me how money I make over 100K means I am some sort of larger burden on the state?
Give the state more money so it can continue it’s sweet pension system for another generation or two? No thanks.
Take more, fine but you make the tax progressive and seriously wealth redistributing progressive just watch those folks leave Illinois.
- steve schnorf - Monday, Dec 7, 09 @ 2:24 pm:
Perhaps my thinking is way out of date, but I don’t believe the minimum wage was ever intended to be enough to support a family of 3 or 4. It was intended to be an entrance into the workforce wage. Note that many very unskilled jobs pay more than the minimum wage, or at least do after a few months on the job.
Perhaps people who are unskilled and not fully integrated into the workforce shouldn’t have a family of 3 or 4. Then the minimum wage wouldn’t be trying to support them.
- Rich Miller - Monday, Dec 7, 09 @ 2:27 pm:
Steve, part of the benefits (or problem, depending upon your perspective, I suppose) of raising the minimum wage is that people directly above those former minimum wage levels usually get raises. It tends to lift more than just the bottom-most wages.
- steve schnorf - Monday, Dec 7, 09 @ 2:46 pm:
A point well made, Rich. I’m sure McDonalds would be paying less if the minimum wage was $5.
- Bill - Monday, Dec 7, 09 @ 2:46 pm:
==Perhaps people who are unskilled and not fully integrated into the workforce shouldn’t have a family of 3 or 4.==
So I guess that means you are pro choice, Steve?
- Montrose - Monday, Dec 7, 09 @ 3:01 pm:
++Perhaps people who are unskilled and not fully integrated into the workforce shouldn’t have a family of 3 or 4.++
This statement assumes two parallel tracks of family and job/wage growth. Especially in our current economic climate, many people have seen their wages slip because of layoffs. At one point they may have had a salary that would be considered sufficient to support a family of three or four, but now they are in a place where they are making minimum wage. It would be great if we were all always moving forward, but that is not how the world works for many.
- steve schnorf - Monday, Dec 7, 09 @ 3:12 pm:
Bill-Absolutely!
Montrose, your point about temporary dislocation is a good one, but I hypothesize people dislocated from an above poverty wage to minimum wage do not represent a large percentage of heads of families of 3 or 4 currently working at minimum wage. Do you disagree?
- Greg B. - Monday, Dec 7, 09 @ 3:52 pm:
Rich, that is part of the problem with the minimum wage. A lot of union contracts are based upon percentages of the minimum wage.
A second growing problem is services. When Illinois raised its minimum wage, some services providers were priced out of the market. Take for example the Carlinville based computer services concern that lost out on a STATE contract to an Indiana firm. Why? The Carlinville firm lost on price. Jobs were lost. But hey, the minimum wage workers I’m sure were grateful the Gov and legislature raise their pay.
In the 1990’s there was a fight fight over the minimum wage between the R Congress and the Clinton WH. When it turned out that McDonald’s was — because of the rising prosperity driving wages up — was paying far more an hour than the proposed hike in the minimum wage, the wind blew out of the sails.
Of course the idea that prosperity would solve financial problems is “largely nonsense” over here. In the US of A it’s worked quite well, though, in the past. Will in the future, too.
Of course, what’s good for the goos is good for the gander, GOP candidates should figure out that, too. Growing prosperity made the min. wage a non-factor in the past. Instead of ending it, make it irrelevant again.
- Small Town Liberal - Monday, Dec 7, 09 @ 3:59 pm:
So let me get this straight, the GOP candidates would like to lower the minimum wage to create more jobs that would, I assume, pay this minimum wage. The minimum wage provides an income which is below the poverty level. The other part of these candidates’ plan is to cut funding for services that, in many cases, help people living in poverty. So who exactly are the winners with the GOP’s plan?
- wordslinger - Monday, Dec 7, 09 @ 4:24 pm:
How about we all start paying another buck or two to buy stuff that’s made here?
Example: Harley-Davidson.
- Small Town Liberal - Monday, Dec 7, 09 @ 4:29 pm:
wordslinger - I’m with you there, you can start by buying mine so I can buy a different one in the spring.
- Montrose - Monday, Dec 7, 09 @ 4:45 pm:
Steve-
You are probably right that individuals in that scenario are a minority.
- concerned citizen - Monday, Dec 7, 09 @ 6:03 pm:
One Man,
Are you a politician? I’ve heard these lines from politicians and
that’s ALL propaganda. Please don’t spread that *propaganda*
By the way, state government is NOT a party.
Wealth HAS ALREADY BEEN redistributed up to the top 1% and top .1%.
Leave IL? Really? Where would they go - all other surrounding states have HIGHER tax rates on people at the upper brackets.
“Sweet pension system”? More propaganda. Average state workers have $18,000 per year pensions after THIRTY YEARS of service. The state of IL by the way most burdens its workers, out of all US states, most citizens served per state worker. Those pensions are modest and well-deserved on their salaries. I’m talking pensions for front line workers, not appointees and cronies, and politicians often bilking the system and double-dipping.
- Lynn S. - Tuesday, Dec 8, 09 @ 12:32 am:
#
- John Bambenek - Monday, Dec 7, 09 @ 12:51 pm:
How about we balance the budget with this revenue enhancer: establish a license fee proportion to the “level” of office for anyone seeking to run for election.
Not a bad idea, John. At the city/county level, will fee be indexed to population and cross-indexed to poverty level of citizens of unit of government? In other words, if I live in Evanston, do I pay a higher fee than Edwardsville? If I run in DuPage County, do I pay a higher fee than Union County?
- Independent - Tuesday, Dec 8, 09 @ 10:06 am:
One way to fix the budget is to make a law which says no state elected official can be paid until all other state vendors are paid first. See how fast they decide to fix the budget.
- Lynn S - Tuesday, Dec 8, 09 @ 10:51 pm:
Also an excellent idea, Independent, but I’m thinking they’ll find some weasel way around it: such as, cutting vendor checks but not putting them in the mail.
- off the record - Wednesday, Dec 9, 09 @ 11:35 am:
In reference to Tax Me More comments at 12:32
Not completely sure where the blogger gets his figures – he doesn’t say he is looking at fiscal years – but assume he is. FY09 data (which he references) is only available by subscription – it is not currently online or available to the general public. In any case, his figures are inaccurate – below are the figures from Illinois Department of Revenue Annual Reports:
Cigarette and Cigarette Use Taxes
$729 million revenue in FY04
$594 million in FY08
$582 million in FY09 (FY09 info is only available by subscription)
Even if you add revenue from Other Tobacco Products Tax to the Cigarette Tax revenue it still doesn’t match his numbers:
$747,650,065 revenue in FY04
$615,934,274 revenue in FY08
FY09 Other Tobacco Products Tax Revenue Collected figure is not available to me
Illinois now ranks 30th in cigarette tax rates. Since 2002, 46 states, DC and several U.S. territories have increased their cigarette tax rates more than 95 times because they know it will increase revenues.
When the state raises its own cigarette and other tobacco product tax rates, it is the master of its own destiny, generally taking effective concrete steps to protect and increase its revenues. Unfortunately, the federal government and local Illinois governments can also raise their cigarette tax rates, and have recently done so, which works directly to reduce the state’s tobacco tax revenues. For example, the federal tobacco tax rate increase that went into effect on April 1, 2009 is reducing smoking rates, nationwide, by about 10 percent, which will reduce Illinois tobacco tax revenues by about 10 percent. Similarly, the large Cook County (March 1, 2006) and Chicago (2005 & 2006) cigarette tax increases have reduced smoking in those jurisdictions significantly, thereby reducing overall state cigarette pack sales and state revenues by as much as 15 percent or more. The only way the state can get those revenues back is to raise its own cigarette/tobacco tax rates.
Every state that has ever increased its cigarette tax by a significant amount has enjoyed a substantial increase in revenue, despite ongoing and tax-specific smoking declines and any ongoing or increased tax evasion. The increased new revenue the state receives on each pack sold in the state after a cigarette tax rate increase always significantly outweighs the revenue losses from the decline in total pack sales caused by the rate increase.
A little history on cigarette taxes in Illinois…
Cigarette tax revenues collected:
FY09: $582 million (FY09 info is only available by subscription)
FY08: $594 million
FY07: $602 million
FY06: $633 million
FY05: $638 million
FY04: $729 million
FY03: $642 million
FY02: $464 million
Most of the year to year changes are caused by tax rate increases. Most notably, the state cigarette tax increase of 40 cents effective July 1, 2002 is why the 2003 and 2004 revenues went up. The reason the increase was not fully experienced until 2004 is because IL allowed stockpiling and did not tax cigarettes in retailer and wholesaler inventories on the effective date of the increase; so retailers and wholesalers stocked up ahead of time, enabling them to sell cigarettes taxed at the pre-increase rate for some time after the effective date, thereby greatly delaying the full effect of the tax rate increase on revenues. In any case, without that state cigarette tax increase, state revenues in 2004 would have been somewhat less than $464 million in 2004, less than they are now — and 2009 state revenues would have been less than $400 million. Or, to put it another way:
FACT: Illinois state cigarette tax revenues are much higher today than they would have been if the state did not increase its cigarette tax rate in 2002.
And:
FACT: Smoking declines reduce state cigarette tax revenues (but smoking declines also reduce state smoking-caused healthcare and other costs and improve worker productivity).
FACT: Cigarette tax rate increases always increase revenues (because the increased revenues per pack bring in more than what is lost from fewer pack sales).