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Tuesday, Mar 29, 2011

* This Wall Street Journal op-ed is making the rounds

High earners, it turns out, have especially volatile incomes—their earnings fell by more than twice as much as the rest of the population’s during the recession. […]

New York, New Jersey, Connecticut and Illinois—states that are the most heavily reliant on the taxes of the wealthy—are now among those with the biggest budget holes. A large population of rich residents was a blessing during the boom, showering states with billions in tax revenue. But it became a curse as their incomes collapsed with financial markets. […]

In New York before the recession, the top 1% of earners, who made more than $580,000 a year, paid 41% of the state’s income taxes in 2007, up from 25% in 1994, according to state tax data. The top 1% of taxpayers paid 40% or more of state income taxes in New Jersey and Connecticut. In Illinois, which has a flat income-tax rate of 5%, the top 15% paid more than half the state’s income taxes.

For everybody else, the WSJ piece uses top 1 percent. For Illinois, it’s the top 15 percent. Why? Because Illinois is among 25 states where the richest one percent account for 20-30 percent of personal income tax receipts. In other words, we’re about average. So, why include us? You’d have to ask the Wall Street Journal.

Also, all five of the states most heavily reliant on taxes from the wealthy (California, New Jersey, Connecticut, New York and Vermont) have graduated income taxes. Illinois has a flat tax.

The piece may explain why Illinois tax revenues shot up in the late 1990s. But it only partially explains the recent revenue crash.

* And I’m not quite sure about this one

Tax money coming into state and local governments in Illinois fell sharply — by $2.2 billion dollars between 2009 and 2010, according to the U.S. Census Bureau.

The decline in tax revenue from $32 billion to $29.8 billion is on par with a pattern that has emerged during the past several years. Areas that measure a state’s economic health — income, sales and property taxes — all have weakened. […]

While income dropped for Illinois, general fund spending increased from $27.9 billion to $29.7 billion between 2009 and 2010.

According to the budget office, General Fund revenues fell from $29.1 billion in FY09 to $27.9 billion in FY10. Actual General Fund spending, according to GOMB, was $29.8 billion in FY09 and $25.5 billion in FY10. I’m not sure why there’s such a huge discrepancy here, but maybe somebody can enlighten me.

* And one more thing

If budget cuts aren’t made now, Radogno said Illinois will face a $22.7 billion deficit by 2016.

The Senate Republicans have repeated this stat for weeks now. What they’ve done is projected spending at the top of the statutory spending cap and used lowballed revenue forecasts. Since state law now requires the General Assembly to match up revenues with spending, it’s not exactly a trustworthy number.

However, the General Assembly really ought to lower those spending caps, which are too high. It wouldn’t mean much in the “real” world, but it would take this oft-repeated argument off the table.

* Related…

* Senate President Cullerton discusses state budget on Chicago Fox News

* launches statewide radio ad campaign

* That new Amazon tax. It was there all the time.

* Senator Radogno discusses Amazon Internet law: Remember, it was not a tax increase. It was simply a means to force places like Amazon to collect the same sales taxes brick and mortar stores must collect.

* At school for blind, travel budget cuts have impact beyond sports

* VIDEO: State Senator Kimberly Lightford On The GOP’s Proposed Budget Cuts

* Schilling amends tax philosophy: It was revealed last week that General Electric paid no taxes on $5.1 billion of profits made in the U.S. and actually claimed a tax benefit of $3.2 billion. “That’s not fair,” Schilling said.

- Posted by Rich Miller        

  1. - wordslinger - Tuesday, Mar 29, 11 @ 8:06 am:

    I think the WSJ threw in Illinois with NY, NJ and CT because of the Chicago financial markets.

    The assumption seems to be that LaSalle Street incomes were as important to state revenues as Wall Street incomes to the other states. Not quite the case with Illinois flat tax.

  2. - Sue - Tuesday, Mar 29, 11 @ 8:27 am:

    It is getting really depressing how out of sync Illinois is getting with reality- Other states are dealing with budgets through spending cuts and reigning in out of whack benefit costs- Here in Illinois the last few days of headlines have been- medicaid being maintained or expanded;union membership among public sector is soaring, Caterpiller is thinking of moving some operations because of the Quinn tax increases- Why is it other states with similar issues(NY,Ohio,Indiana,WI) are able to take steps toward reducing expenses but all Quinn can do is promote union membership and union benefits- What will it take to get our elected leaders to start making the same inroads other states are taking?

  3. - wordslinger - Tuesday, Mar 29, 11 @ 8:42 am:

    –Caterpiller is thinking of moving some operations because of the Quinn tax increases–

    What operations are those? Who said that?

    Yeesh, this letter is like a magic mirror — people see what they want to see. State taxes were not mentioned in it, by the way.

    The letter was much more subtle and nuanced. My guess is the first order of business will be that Caterpillar wants something equal to or better than the Ford, Navistar and Mitsubishi deals.

    Secondly, work comp will get a big push. Thanks to the BND, I think a lot of people will get on that train.

  4. - Kasich Walker, Jr.'s Bee Itch - Tuesday, Mar 29, 11 @ 8:42 am:

    Rich….delete this comment. Just noting that the links for the first four items in your “related” section led me to a blank Illinois Review page. Maybe I did something wrong???


  5. - Kasich Walker, Jr.'s Bee Itch - Tuesday, Mar 29, 11 @ 8:44 am:

    Rich…links work now

  6. - Ghost - Tuesday, Mar 29, 11 @ 8:52 am:

    Lts just use the same level of Cuts the GOP used 19991-93 to combat the States growing deficit back then. First, we will redirect pension money to pay bills, but we will put in place a plan to pay it back over 50 years, but we will put off the big payments for 20years….

    The State budget mess is a long term creation by both the Demgs and the GOP for years of mismangement. We kept kicking the can down the road with bad times, and never planned an emrgency fund for good times.

    But villifying the unions and State eployees is old fashioned newegg by the GOP.

  7. - Kasich Walker, Jr. - Tuesday, Mar 29, 11 @ 9:01 am:

    “…New York, New Jersey, Connecticut and Illinois—states that are the most heavily reliant on the taxes of the wealthy—are now among those with the biggest budget holes…”

    Gee, I wonder who those with the highest incomes rely on for revenues, or are the high earners simply exchanging money amongst themselves? If there is no need to grease the legislative process nor twist the arms of foundations to finance transition teams, maybe the high spending for political campaign advertising will end.

    WSJ hits the bird cage

  8. - ChangeAgent007 - Tuesday, Mar 29, 11 @ 9:13 am:

    Yeah. :P Another “source” I have to argue against. WSJ is definitely in the pocket of GOP and since the Reps are in the midst of a budget battle here they need to legitimize the lies somehow. *sigh*

  9. - Cincinnatus - Tuesday, Mar 29, 11 @ 9:31 am:

    Rich said,

    “The Senate Republicans have repeated this stat for weeks now. What they’ve done is projected spending at the top of the statutory spending cap and used lowballed revenue forecasts.”

    A general question to those in the know, if you take the highball revenues estimate and the lowball spending estimates, is the budget balanced?

    Without knowing those numbers offhand, I’m willing to bet NO.

    If I am correct, and the budget doesn’t balance, we either need to raise taxes (again), cut spending (finally) or some combination of both. Since the revenue estimates already include the Quinn tax, does that not indicate to anyone in the GA that we need to cut spending, and right now?

  10. - Sue - Tuesday, Mar 29, 11 @ 9:44 am:

    Cullerton on Fox Chicago Sunday morning mentioned that they are looking at legislation to deal with retiree health contributions paid by recipients- isn’t that something the State can do just by imposing higher contributions through CMS? Is this just more delay while other states are taking immediate corrective steps- Michigan apparently has just announced a reduction in unemployment benefits from 26 to 20 weeks- Maryland recently enacted increases paid by employees to fund state pension benefits- why is it Illinois is standing still?

  11. - Cincinnatus - Tuesday, Mar 29, 11 @ 10:17 am:

    Sue said,

    “Is this just more delay…”

    The real delay will come when we see our first bi-partisan commission tasked with studying the issues surrounding the need to create a task force to study the issue in greater depth.

    Sorta like the Department of Redundancy Department…

  12. - Ray del Camino - Tuesday, Mar 29, 11 @ 10:21 am:

    Are some of you guys even paying attention? Budgets are being slashed all over the place. What do you mean “cut spending (finally)”? Walk around a public university and look at all the deferred maintenance. Ask providers of care for the mentally ill or elderly if they’re getting paid, and whether services are expanding or contracting. Funding is back to the levels of the 1990s in many areas–not even controlling for inflation.

    We just flat are not paying for services we are demanding and receving. Try that in a restaurant or a store sometimes. You have to pay your bills.

  13. - chi - Tuesday, Mar 29, 11 @ 10:27 am:


    Last year the Legislature enacted sweeping reforms of all pensions for new hires. This year, they raised income and corporate taxes. The state has also reduced spending by billions of dollars. Maybe you need to read past the last few days of headlines to get a more accurate picture of the steps the state has made. The sky isn’t falling.

  14. - Cincinnatus - Tuesday, Mar 29, 11 @ 10:27 am:


    Has there been one new program instituted by Pat Quinn this year? What critical need has that program addressed that wasn’t being adequately covered in the past. Has the new program replaced and eliminated another defunct, out of date program?

    Perhaps using this methodology, we can find one single program to eliminate. Alas, I fear there is none. Everything must obviously be funded at its current or increased level, now and forever.

    Using your analogy, you’re right, you cannot go into a restaurant and not pay the bill. My corollary is that if you don’t have the money, you eat at home and skip the restaurant.

  15. - cassandra - Tuesday, Mar 29, 11 @ 10:49 am:

    Well, if the sky isn’t falling, should Governor Pat just continue his efforts to borrow about $9 billion dollars, including an unspecified amount to fund operations, not overdue bills? Oh wait, that’s what he is doing. So why worry? What budget crisis?

  16. - Rod - Tuesday, Mar 29, 11 @ 11:46 am:

    It appears to me that Senate Minority Leader Christine Radogno’s proposed cuts to the budget reject the hard line proposal made by the Illinois Policy Institute. For example Sen Radogno is now calling for a $725 million cut in spending on elementary and secondary education and $200 million for higher education, for a total of $925 million. The Policy Institute called for a $1.7 billion cut to elementary, secondary, and higher education. Is Radogno some type of liberal or what?

  17. - wordslinger - Tuesday, Mar 29, 11 @ 12:01 pm:

    The radio spot and other propaganda of the Illinois is Broke coalition is pretty simple-minded, Foxy and Tea Partyish for such a self-appointed Olympian group of Establishment types like the Civic Committee of the Commercial Club.

    If Leo Burnett, whose CEO is on the committee, did the spot, I hope it was gratis.

    Apparently, “classrooms are overcrowded” and “businesses are leaving” because of public employee pensions and “ninety-five percent of us pay more in taxes for the other five percent.”

    That’s more than a little chutzpah from a crew that includes chronic state handout beggar The Duchossois Group, plus handout beneficiary Boeing.

    Not to mention the committee members from the TARP banks and bailed-out cowboy investment banking houses that got us into this mess in the first place.

    Do the Ivory Tower seekers-of-truth on the committee from the U of C, U of I and Northwestern buy into this approach?

  18. - GoldCoastConservative - Tuesday, Mar 29, 11 @ 12:30 pm:

    @ Wordslinger - I think CAT’s threat was strongly implied in the Chiarman’s letter:

    “Before, I… certainly never considered the pssibility of Caterpillar relocating. But I have to admit, the policymakers in Springfield seem to make it harder by the day.”

    Attached to the letter were four letters from four other state, each mentioning the recent tax hike.

  19. - Small Town Liberal - Tuesday, Mar 29, 11 @ 12:56 pm:

    - I think CAT’s threat was strongly implied in the Chiarman’s letter -

    Not according to the actual letter in which the chairman claimed it is not a threat and he merely wants to help Quinn get the state moving in a more pro-business direction. They’re just looking for a handout, will probably get one.

    Rich provided some links to articles regarding how some large Illinois companies, including CAT, have avoided paying any state taxes at all. I found it interesting that one of the articles was by Scott Reeder when he was with the SJ-R. Must not have been completely on the Right’s payroll back then.

  20. - Sue - Tuesday, Mar 29, 11 @ 1:37 pm:

    The pension changes for new hires was a joke- It didn’t go nearly far enough- what they could have done was convert new hires to a contributory plan and gradually eliminate the dissaster known as defined benefits-Illinois is facing a monumental dissaster absent meaningful spending cuts so that the tax increase actually leads to a balanced budget- as far as what is happening at the public universities- it isn’t budget cuts but late payments of what is owed

  21. - cassandra - Tuesday, Mar 29, 11 @ 2:01 pm:

    Actually, I think that’s $1 billion in spending cuts
    pre-election Quinn admin. Not “billions.”

  22. - lincolnlover - Tuesday, Mar 29, 11 @ 2:39 pm:

    Ok, Sue. Lets say that immediately, the state drops the existing pension plan. Just flat out admit that they never had, nor do they ever have, any intention of paying what they contractually agreed to pay. Does that fix the budget problem??
    Of course not! Wake up - the pension overdue payment is only one part of the equation. Public employees are not your enemy and you need to stop acting like they are.

  23. - Sue - Tuesday, Mar 29, 11 @ 3:12 pm:

    lincolnlover- noone is suggesting that the State drop its pension obligations- all right minded folks are saying though is that it is time for illinois to recognize that the house is on fire and the Governor along with madigan and cullerton need to lay a framework for ther future which includes meaningful reductions in state spending- illinois can’t be a bastion of liberalism continuing a growing medicaid program, free healthcare for retirees, unmanagable pensions while the rest of the country is battling the same issues by taking corrective measures- otherwise Cat won’t be the last company threatening to relocate- what employers are telling us is that the world is changing and Illinois MUST change with it- The Governors in NY, Ohio, Mich, NJ, Cal, IN and WI aren’t all wrong- public spending here is out of control and Quinn’s answer can’t be well lets just raise taxes and keep spending on all of the programs being cut in other states

  24. - wordslinger - Tuesday, Mar 29, 11 @ 4:03 pm:

    Sue, read Finke’s column on The Center for Tax and Budget Accountability study, in case you ever want to attach any facts to the rants:

    –One of the center’s conclusions was that despite all of the complaints about the state spending too much, it would be a good deal more if spending had kept up with inflation and population growth over the last decade. If you take those factors into account, the analysis determined, spending is less now than it was in 2000. Not a little less, but nearly 16 percent less. Overall. Higher education, it said, is down 35 percent, and the often vilified outgo for health care is down 13.4 percent.–

    The states you mention have been higher spending and higher taxing than Illinois for quite some time. It’s a little easier for them to wield the ax.

  25. - Anon - Tuesday, Mar 29, 11 @ 4:15 pm:

    Instead of continually citing public employee pensions and health care costs as a significant cause of the state’s fiscal problems, why dig a bit deeper. Let’s take for example the corporate income tax. The corporate income tax classifies income as either business income or nonbusiness income. Business income is divided (apportioned) between all of the states in which a corporation doing business in multiple states conducts business. Nonbusiness income is allocated to the state of corporate domicile (headquarters). During the Edgar administration, at about the same time a large corporation moved its corporate headquarters to Illinois, the income tax was modified to all a company to elect to treat all of its income as business income. That provision gave a tax break to all corporations with headquarters in Illinois. It is doubtful that any other state taxes the savings. In addition, at about the same time, the manner in which corporate business income was divided (apportioned) between Illinois and other states was changed from a formula that consists comparing property, payroll and sales in Illinois to property, payroll and sales everywhere to a formula that only compares sales in Illinois to sales everywhere. This change had the effect of giving companies with lots of property and payroll in Illinois compared to other states that make sales throughout the country a tax break.

    I suspect a number of corporate members of the Illinois is Broke group have benefitted handsomely from these two changes. I also suspect that repealing these two provisions would go a long way toward adding sufficient funds to state coffers to pay for the public employee and retiree health care and pension payments.

  26. - lincolnlover - Tuesday, Mar 29, 11 @ 4:29 pm:

    Sue - Had you made that statement earlier, I might have been a little more understanding. Go back and read your own earlier posts. All you did was point a finger at public employees and so, all I did was to point out to you that is only one wedge of the pie.

  27. - Anonymous - Tuesday, Mar 29, 11 @ 7:54 pm:

    CTBA analysis, as usual, is the best out there (full disclosure, I’m on the Board of Directors). You may not agree with CTBA’s position on various issues (I don’t always), but virtually no one disputes their numbers, ever.

  28. - steve schnorf - Tuesday, Mar 29, 11 @ 7:55 pm:

    sorry, the 7:54 post was me

  29. - Retired Non-Union Guy - Wednesday, Mar 30, 11 @ 1:26 am:

    While I believe more cuts are still needed, the State is slowly cutting spending. My sibling who still works for a state agency spends most of their time consolidating / closing offices around the state. Seems like every other week they are somewhere moving an office. I’m sure there are savings, maybe not tens of millions, but it must add up in the long run.

    People keep forgetting it took the state almost 50 years to get into this mess and it will take time to work out of it … hopefully not 50 years but it sure can’t be fixed in one or two years in the current economy.

Sorry, comments for this post are now closed.

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