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Long-term debt is not short-term debt

Wednesday, Nov 26, 2014 - Posted by Rich Miller

* Math is, indeed, simple

It’s simple math.

With more money going to pensions, less will be available for wages and other benefits.

Of course, the Illinois Supreme Court could rule that the crisis is so extreme that the state’s emergency powers allow it to reshape pensions on their own.

Just how severe is the crisis? If all of state government were to shut down and its entire operating budget were diverted to fund pensions, Illinois pensions still be would in the hole three years from now.

Now, that’s a crisis.

The $110 billion in unfunded liability is long-term debt. It can be paid off over time because everybody isn’t gonna retire all at once.

* So, to put it in simpler terms, if you think of that liability as a 30-year home mortgage, you can see that it’s not an existential crisis with current revenues in place. Most people who have mortgages couldn’t pay them off in three years if they diverted all their income to just their homes. It’s why they take out loans in the first place.

And nobody has a mortgage which reinvests what’s being paid every month to help pay off the balance. That gives the state an advantage.

We’re just about at the top of the Edgar ramp. Payments will rise another $800 million or so next fiscal year and then essentially even out as a percentage of revenues. It can be managed, but the budget will be very tight for a very, very long time.

* The bigger problem is with our revenues, which start to collapse at the end of this year. If you buy the nicest house you can afford while earning $100,000 a year and your income suddenly drops by $25K, then that mortgage becomes far less affordable.

So, that’s really what this debate is about. People are trying to find a way to cut pension payments so they can cut the income tax rate. If they can’t do that, then other programs will have to be slashed or other taxes raised so the income tax rate can be lowered. There are no easy solutions.

A homeowner in the same situation could go out and find another part-time job, cut way back on expenses, or even sell the house. That last option probably isn’t available to the state.


  1. - PublicServant - Wednesday, Nov 26, 14 @ 10:53 am:

    Pensions were borrowed from in the first place over all these years because revenues were inadequate to cover expenses.

    The heavy lifting would be to keep taxes high enough to cover those expenses, and pay off the accumulated debt. Instead, what we have is the constant pressure to resume paying the unrealistic flat rate of 3%, when no state anywhere around us has anywhere near that low of a rate.

  2. - muon - Wednesday, Nov 26, 14 @ 11:03 am:

    To follow up with the mortgage analogy, it isn’t unusual to see a family buy a home that is valued at three times the family’s annual income. That doesn’t mean that the family has to pay their entire income towards their mortgage, but it might mean they pay about a quarter of it.

    110 billion is about three times the state’s general fund income of 35 billion, so that fits the home mortgage model. The pension payments are still under a quarter of the general revenue, so the analogy fits there, too. It does imply that other spending would be tight, just like a household holding debt near the maximum the banks would lend.

  3. - Anonymous - Wednesday, Nov 26, 14 @ 11:04 am:

    Keeping taxes at 5% is needed, maybe now that Quinn is gone a gambling bill can get passed, some fracking revenue will be nice, adjusting the ramp will hepl also.

  4. - Mouthy - Wednesday, Nov 26, 14 @ 11:06 am:

    “Of course, the Illinois Supreme Court could rule that the crisis is so extreme that the state’s emergency powers allow it to reshape pensions on their own.”
    It won’t work because the state, like it or not, still has the ability to cut spending that isn’t protected by the ISC or raise taxes.

  5. - Been There - Wednesday, Nov 26, 14 @ 11:07 am:

    ===If all of state government were to shut down and its entire operating budget were diverted====
    The pension systems is made up of around 3/4th teachers. For this to be correct you would have to include all the operating budgets of all the school districts. Not sure how big their budgets are but you could pay it off a lot quicker in their flawed scenario.
    I don’t see how the pension problem is ever solved without some kind of cost shift. Not an easy task but any discussion like SB16 should consider it.

  6. - Yellow Dog Democrat - Wednesday, Nov 26, 14 @ 11:09 am:

    Great analogy, Rich.

    I think it is fair to point out that part of the “crisis” is manufactured.

    The 100 percent funding standard is arbitrary.

    The bond houses and raters don’t care.

    The fiscal experts would be overjoyed with 90% funding.

    The fiscal watchdogs at Pew Center actually consider 80% adequate.

    If it is a choice between higher taxes and 100%, instead of 100% and union benefits, we already know which way the biz groups and the Tribune will go.

  7. - jeffinginChicago - Wednesday, Nov 26, 14 @ 11:09 am:

    I think I have changed my mind about funding levels. For a municipal or state to have a goal of 100% is not necessary. Good but not necessary. 100% should be for private institutions that may go out of business or cease to exist to protect the pension. But the State of Illinois will always have employees and the State paying in. At 85-90& funding you can have a pay as you go system working nicely for a long time. Short term shortfalls would be painful not critical or fatal.

    Take the pressure down today by reducing funding requirements but maintain them at ~90%. As long as municipalities and the State have employees and taxpayers you can fund the rest as you go.

  8. - Anonymous - Wednesday, Nov 26, 14 @ 11:09 am:

    The problem with the mortgage analogy is that you just can’t decide to skip a year’s payments when you decide to use the money someplace else. And the same legislative leaders, Madigan and Cullerton brought us down this road in the first place got us into this mess, now are suppose to lead us out of it! And not to forget Ryan and Blago’s part in this too! Unless you could rock solid guarantee the payments would come every year, it’s not worth the paper it’s written on.

  9. - Stuff Happens - Wednesday, Nov 26, 14 @ 11:09 am:

    I would happily take 100 acres of state park to in lieu of my pension. Just wanted to throw that out there.

  10. - jeffinginChicago - Wednesday, Nov 26, 14 @ 11:10 am:

    yDD beat me to it.

  11. - Cassiopeia - Wednesday, Nov 26, 14 @ 11:11 am:

    The teachers are the problem and the cost shift to local communities has to happen. This should not be a state responsibility. Locals hire and set salaries.

  12. - steve schnorf - Wednesday, Nov 26, 14 @ 11:14 am:

    so, jeffing, just what was George Ryan’s “part in this”? I’m intrigued.

  13. - jeffinginChicago - Wednesday, Nov 26, 14 @ 11:18 am:

    steve, I can explain how I got to this point but don’t get the George Ryan reference. It will take a couple of paragraphs.

  14. - Poster - Wednesday, Nov 26, 14 @ 11:19 am:

    So there is a $110B unfunded pension liability. Meaning if the state stopped functioning tomorrow it would still owe $110B over the next 30 years. The state will not stop functioning tomorrow. There is probably a 99.99% probability it will not stop functioning in the next 30 years.

    Given that the state will not stop functioning, I would argue that everything the state does is an unfunded liability. The fact that we must appropriate legislators salaries creates an unfunded liability.

    I’m 99.99% sure the state will use electricity for the next 30 years. That could be considered an unfunded liability.

    The Comptroller’s Office which is going to exist 30 years from now can be considered an unfunded liability.

    I know that an unfunded liability is something you still owe when the entity is dissolved, but the state is not going to dissolve. So the cost of everything can be projected out for 30 years. And the numbers will be huge, just like the pension liability.

  15. - Jaded - Wednesday, Nov 26, 14 @ 11:19 am:

    I’m sure Reeder meant “whole”. Of course as many times as he has called Illinois a (blank)hole, maybe it was just a Freudian slip.

  16. - Norseman - Wednesday, Nov 26, 14 @ 11:19 am:

    Or you can refinance to lower current payments.

    I think consideration must be given to a combination of all three elements.

  17. - Jaded - Wednesday, Nov 26, 14 @ 11:20 am:

    Oops, I read it wrong, never mind…

  18. - Soccertease - Wednesday, Nov 26, 14 @ 11:23 am:

    State’s are sovereign. No one wants to raise taxes/fees. But unlike business, the state can generate revenue if it has to. That will also make Rauner a one-term governor.

  19. - Illinois taxpayer - Wednesday, Nov 26, 14 @ 11:24 am:

    Throw in the municipal pension crisis, and you really are creating a long term environment in which the overwhelming priority is pensions. How do we think that’s going to keep Illinois a place where people and businesses want to stay and feel confident about the future?

  20. - Demoralized - Wednesday, Nov 26, 14 @ 11:25 am:

    ==The teachers are the problem and the cost shift to local communities has to happen.==

    Locals would have to increase taxes for this to happen and that is not likely. So, the pension problem doesn’t get fixed that way either.

  21. - Demoralized - Wednesday, Nov 26, 14 @ 11:27 am:

    @Illinois taxpayer

    So what’s your solution? Because the courts have indicated that the solution is to pay them.

  22. - steve schnorf - Wednesday, Nov 26, 14 @ 11:33 am:

    jeffing, I apologize. I mis-referenced a comment by Anon 11:09, not you

  23. - jeffinginChicago - Wednesday, Nov 26, 14 @ 11:38 am:

    Steve No problem

  24. - Robert the Bruce - Wednesday, Nov 26, 14 @ 11:40 am:

    Terrific analogy. I’m hoping the state doesn’t cut its own income since it has this mortgage.

  25. - LisleMike - Wednesday, Nov 26, 14 @ 11:55 am:

    My guess is that the “crisis” is the inability and/or unwillingness of our electeds to do anything about it. I like the analogy, Rich, however, I recall that our first house required a strict budget and that meant doing without some of the things we were used to having. (like a vacation the 1st two years!) and this was during the late 70’s when instrest was “good” at 14%!
    Thanks for some common sense on the subject.

  26. - Dan Johnson - Wednesday, Nov 26, 14 @ 11:55 am:

    Tax pension income.

    Here’s my best analogy: you rent the basement of the house to a pensioner, and he doesn’t pay rent. If he did pay fair market value (paid the same income tax rate as everyone else), paying the mortgage would be a lot easier. Maybe you could even help send your kids to college.

    I think it is just shy of a billion dollars a year to not tax pension income.

  27. - Soccermom - Wednesday, Nov 26, 14 @ 12:00 pm:

    YDD is right. 85-90 percent is more than adequate. (For those of you who have not been following along at home, 100 percent funding means you have enough cash on hand to pay for everybody’s pension liabilities, including the accumulated liability for those who are still working.)

    We are never going to see the entire state workforce retire en mass. So 100 percent is not necessary.

    Let’s revise the ramp, which was completely arbitrary, and cost-shift to the school districts for any pension over, say, $150k. It doesn’t solve the problem overnight, but I think it would make it manageable. Schorf?

  28. - Been There - Wednesday, Nov 26, 14 @ 12:01 pm:

    ===The problem with the mortgage analogy is that you just can’t decide to skip a year’s payments when you decide to use the money someplace else====
    No but you can be somebody like me and refinance constantly. Looking forward to not doing that anymore now that the kids are almost out of school.

  29. - Been There - Wednesday, Nov 26, 14 @ 12:03 pm:

    ===The teachers are the problem and the cost shift to local communities has to happen. ===
    I would change this to the school districts are the problem not the teachers. The teachers are getting what they bargained. The districts are having the state pay their freight.

  30. - archimedes - Wednesday, Nov 26, 14 @ 12:13 pm:

    Rich - your concise description is spot on:

    “People are trying to find a way to cut pension payments so they can cut the income tax rate. If they can’t do that, then other programs will have to be slashed or other taxes raised so the income tax rate can be lowered.”

  31. - Just a guy - Wednesday, Nov 26, 14 @ 12:22 pm:

    I would suggest looking at the pension debt as more of a credit card bill opposed to a mortgage. It is for services that have already been rendered. With the mortgage, the family can sell the house and downsize to reduce their mortgage payment. The state has already used the employee’s services that created the debt.

  32. - Wordslinger - Wednesday, Nov 26, 14 @ 12:22 pm:

    The “crisis” was invented by the civvies as part of an overall union-busting strategy and secondarily to gauge what the courts would let them get away with in not paying back borrowed money.

    Their real fear isn’t the corporate income tax, which most of them don’t pay, but a move toward a progressive personal income tax, a la Wisconsin.

    That nice Mr. Walker and his GOP legislature really stick it to middle-class and high earners. Funny they haven’t got around to do anything about that for four years.

    The civvies were aided and abetted by the deep thinkers among the Tribbies who are breathtakingly ignorant about finance and economics in general.

  33. - Rod - Wednesday, Nov 26, 14 @ 12:24 pm:

    Scott Reeder really has no basis for hoping the Illinois Supreme Court will agree to the fiscal emergency argument. Given the decision they issued on the health care provisions for retirees its hard to imagine such a turn around.

    The massive cuts are coming, assuming Governor Rauner is unwilling to back off his low tax agenda. It’s as simple as that.

    The biggest problem for Rauner will not be carrying out the cuts but somehow protecting public education and higher education from the cuts. If those big line items are protected the cuts to the other areas will have to be even higher.

  34. - RNUG - Wednesday, Nov 26, 14 @ 12:36 pm:

    A few observations:

    The target level for funding the pensions could be set as low as 70% and still be reasonable given Illinois won’t go out of business. Higher numbers give more of a cushion to ride out fiscal and economic ups and downs.

    A good part of the mania to fund at 90% - 100% levels is being driven by new (and not necessarily improved) financial reporting standards. These “new” standards make it all look a lot worse even though nothing basic has changed.

    To make the mortgage analogy a bit more accurate, the “Edgar” ramp was more like a unconventional mortgage with a low teaser rate followed by increasingly larger balloon payments … and as Rich notes, we’re pretty much done with the ballon jumps.

    Want to eliminate the income tax completely (something the IPI is pushing, among others)? Well, you can do it while still paying the pensions. Just expand the income tax to all services and eliminate all tax loopholes. It might even be possible to do that while slightly lowering the sales tax rate. And that’s not pie in the sky either; I’ve heard it from what someone with the appropriate background to make that judgment. But the problem with that is eliminating those loopholes that various businesses love.

  35. - VanillaMan - Wednesday, Nov 26, 14 @ 12:36 pm:

    There are a few societal pressures causing this and a lessening of them will change this crisis.

    We’ve had a run of bad government. From governors to congressmen, from alderman to law enforcement officers, we’ve see a parade of folks scandalizing Illinois. After generations of expecting government to lead, we are discovering it’s limits when our leader don’t just not lead, they inflame and cause state crisis. Few are willing to freely speak about the damage caused by our politicians failing so spectacularly.

    Every issue has become overly political. Failure is not just an orphan when it shows up in government, failure is weaponsized, and voters end up watching leaders toss it like a political time bomb refusing to be accountable for it. Our problems are not political, so politicizing them doesn’t fix them and politicizing them seem all our leaders wish to do.

    Consequently, Illinoisans don’t like their governments. With good reasons. When citizens don’t trust their leaders, see them not be accountable for its problems, don’t get a value for their money, they feel everyone in civil service are playing them for fools.

    If our economy was good, we can work around this high level of public disgust, but it isn’t. To fix our problems our leaders need to stop hiding behind political spin, blaming other parties, and asking for more money. Our leaders have earned our distrust. Before we open our wallets to give them more of our money, they need to prove to us that they really want to do more than they have done so far.

    Until then, they should be made to listen to all the ideas respectfully, good and bad, and bring us together again.

  36. - RNUG - Wednesday, Nov 26, 14 @ 12:39 pm:

    Mistyped … should have read “Just expand the SALES tax …”

  37. - Arizona Bob - Wednesday, Nov 26, 14 @ 12:43 pm:

    How ironic that the Eptiaph for Illinois will read,”Here lies the late, great state of Illinois. It died because it decided it was more important to pay people not to work than educating and protecting its citizens. Im Pace Requiescat”

  38. - Harry - Wednesday, Nov 26, 14 @ 12:44 pm:

    Absolutely right–even understates the absurdity of the straw man of having to pay it all up front. It’s about a 60-year deal, until the recently hired actually retire and then collect annuities for another 20+years. That’s even ignoring survivor benefits.

    Budgets will be tight for a long time, but this is not a catastrophe, and the revenue side is the issue, much more than the expense side.

  39. - Wordslinger - Wednesday, Nov 26, 14 @ 12:55 pm:

    AB, you’re one hungry troll today, just starving for attention.

  40. - Finally Out (formerly Ready to Get Out) - Wednesday, Nov 26, 14 @ 12:55 pm:

    I was wondering if the Morris Daily Herald was an arm of the Tribune or IPI, then I checked the link to read the article. Saw Scott Reeder’s name on the article, enough said.

  41. - Federalist - Wednesday, Nov 26, 14 @ 1:27 pm:

    I don’t like it, but without the 5% income tax rate this will be a financial mess beyond recognition.

    For those of you who said that this would be the case and the tax would not go down again as promised, I believe you will be proven correct.

    One idea, and I stress idea, because I really don’t know enough to be talking about it, is to sell about $60 billion of 30 year bonds for the pensions. That might cost $3 billion a year but would be cheaper than the present outlays. Hopefully that $60 billion would get the pensions up to about a 75% funded status.

    Interest rates, in my opinion, will never be lower- particularly for the state of Illinois.

    Anyway, this is food for thought. Comments?

  42. - Federalist - Wednesday, Nov 26, 14 @ 1:31 pm:


    Your comment below is worth considering.

    However, it should be applied to all state government agencies. That includes universities and even regular (SERS) state agencies. they would just have to take it out of their budget.

    Let’s revise the ramp, which was completely arbitrary, and cost-shift to the school districts for any pension over, say, $150k. It doesn’t solve the problem overnight, but I think it would make it manageable. Schorf?

  43. - forwhatitsworth - Wednesday, Nov 26, 14 @ 1:33 pm:

    When will pension critics finally accept the plain language of the state constitution that says that pension benefits CANNOT be “impaired or diminished” and make an honest attempt to fix the DEBT problem? A good place to start would be reamortization, extending the sales tax to select services, and fixing the archaic income tax structure.

  44. - Anonymous - Wednesday, Nov 26, 14 @ 1:47 pm:

    Dan Johnson—you do mean tax all retirement income, correct? Otherwise you are pre-selecting a specific population to pay for the state’s financial woes even tho they had absolutely no part in causing those problems. Sure, if pensions, IRAs, social security, 401Ks ,etc., etc. were taxed, that would be a reasonably fair proposal. Otherwise, it is discriminatory.

    Also, “people are trying to cut pension payments so that they can cut the income tax rate”

    Once again, at the risk of sounding victimized, who is paying the price here? YES, public employees/retirees have been assaulted financially ONCE……….they were duped out of their rightfully earned pension funding. Now, we go at them again and try to make them pay more? Publics should take to the streets in outrage over this theft and new attempted theft!

  45. - Demoralized - Wednesday, Nov 26, 14 @ 2:06 pm:

    ==pay people not to work ==

    It’s called retirement. You know, that thing you EARN from working.

    Bills have to be paid Bob. These are legitimate bills.

    And the state isn’t dying you dope. Last I looked out the window it’s alive and well.

    Is your life really so horrible you have nothing better to do than rip on the State of Illinois? I mean, do you not have a life?

    I live in Illinois Bob. My life is just fine. So is the life of my family and friends. I mean, I know it’s not the Garden of Eden like you have there in Arizona. We have winter here and they stink. But it’s good just the same.

  46. - archimedes - Wednesday, Nov 26, 14 @ 2:19 pm:

    As far as issuing bonds to pay the unfunded liability. Pension Obligation Bonds are taxable - State can’t use tax exempt bonds. That increases the interest rate quite a bit. Also, a $60 billion issuance may be more than the market can absorb from Illinois.

  47. - Shemp - Wednesday, Nov 26, 14 @ 2:27 pm:

    So if not being fully funded is no big deal (which I agree with to an extent), why oh why is the State forcing downstate pensions to be 90% funded or lose funding? Rhetorical question. Mostly.

  48. - disruption - Wednesday, Nov 26, 14 @ 2:44 pm:

    It is true that the State of Illinois is becoming, more and more, predominantly a pension system. Look at the percentage of the annual budget going towards pension costs. I think this perspective is pretty tough to reconcile with what most people consider the “purpose” of a state to be.

    It may very well be that the pensions are constitutionally untouchable….but to try to deny that we are paying people’s retirement’s by the evisceration of schools, hospitals, future state jobs and raises, infrastructure, services, etc. just rings a bit hollow.

    No easy answers but higher taxes and less money for the above services are pretty certain and it doesn’t bode well for the future of the state.

    Years of poor management, special interest guided policies, and an uninformed, unmotivated electorate will be difficult to overcome.

  49. - Arizona Bob - Wednesday, Nov 26, 14 @ 2:48 pm:


    =It’s called retirement. You know, that thing you EARN from working.=

    Actually, Dem, if the pensions WERE really for retirement, much of the funding problem would disappear. What the pension deal in Illinois truly is is a second career subsidy. People take the pension at too young of an age to actually retire, and then get other guv jobs with the pension becoming “supplementary salary”. The 50s is WAYYYY to young to give a pension, Dem. Pensions should only be paid when an employee has stopped working, or at least take a greatly reduced pension like SSC. That’s fair. When a CTA janitor gets a $40K pension at 55 then goes to work as a 143 in CPS for $60K, then gets an additonal CPS pension when they “re-retire” at 65, that’s a big fiscal problem that needs to be addressed if Illinois will ever dig itself out of its mess.

  50. - Wordslinger - Wednesday, Nov 26, 14 @ 2:49 pm:

    Disruption, that’s Tribbie spin.

    Pension contributions are larger because the state has gotten around to paying, with interest, the money that it borrowed from the systems.

    The previous contribution levels were a lie.

    You borrow money, you pay it back.

  51. - Dan Johnson - Wednesday, Nov 26, 14 @ 3:05 pm:

    Anonymous 1:47 pm — yes, all retirement income ought to taxed. I think it’s just shy of a billion at the old 3% rate, almost two billion at 5% so at the new 3.75% rate, maybe 1.2B?

    Good IGPA paper on the topic I just found:

  52. - Anonymous - Wednesday, Nov 26, 14 @ 3:06 pm:

    Of interest was a link a few days ago that showed the average pension benefit of the various 5 funds. Of course, the highest amounts went first to the judges, then to the legislators. (The ones who are trying to cut everyone else’s benefits.) Are these people in such a mind vacuum that they are not capable of figuring out a way to repay what they took from workers? Others, like Martire, and even commenters on this blog have some very insightful solutions. It seems apparent to me that they just don’t want to consider real solutions. There is something in it for them very big to keep their own benefits (and judges) while crippling retirees and public workers.

  53. - Wordslinger - Wednesday, Nov 26, 14 @ 3:07 pm:

    FWIW, I think 85-90 percent is crazy high, too.

    Do have 90 percent of your mortgage liability banked?

    Why hand all that money to the stock market and the private equity guys to skim?

    It’s a manufactured crisis, advanced by know-nothings like Reeder?

  54. - disruption - Wednesday, Nov 26, 14 @ 3:14 pm:

    Word, I agree with you that part of the cause of this problem has to do with fiscal negligence on the part of the state. I don’t think any reasonable person argues against that. However, it doesn’t matter how we got here… we are, what do we do now?

    Regardless of how it happened, Illinois is morphing into an entity that bears little resemblance to what most people think a state should represent……which is essentially a very large pension system supported by the taxation of it’s citizens.

    It is what it is, regardless of how we got here. Now what do we do?

    Our state leadership needs to start with a vision of what they want our state to actually be……then create a long term plan to get there within the boundaries of what is economically and politically possible.

    But we need leadership with the best interest of the entire state at heart…..not just special interests, etc as in the past.

    Maybe Mr Rauner is our guy, maybe not. It is a tall perhaps impossible task, but I think it’s going to take visionary leadership to get us out of this mess, and it’s going to take that over a long period of time. Again, very tall order.

  55. - anon - Wednesday, Nov 26, 14 @ 3:17 pm:

    == “People are trying to find a way to cut pension payments so they can cut the income tax rate. If they can’t do that, then other programs will have to be slashed or other taxes raised so the income tax rate can be lowered.” ==

    It will take far more than a sales tax on 32 services to replace the $7 billion in revenue from the 2% income tax hike. Since Rauner and his backers hate the income tax, what alternate revenue sources could they tap into?

  56. - MikeMacD - Wednesday, Nov 26, 14 @ 3:21 pm:

    === “Why hand all that money to the stock market and the private equity guys to skim?” ===

    That’s a very good point that doesn’t get discussed much. If the pension funds invested with the next Bernie Madoff and were wiped out, the state would still have the liability to the pensioners.

  57. - Driveby - Wednesday, Nov 26, 14 @ 3:41 pm:

    Blind leading the blind. The mortgage is negatively amortizing, folks, with no end in sight.

  58. - RNUG - Wednesday, Nov 26, 14 @ 3:46 pm:

    - anon - Wednesday, Nov 26, 14 @ 3:17 pm:

    I wasn’t kidding when I said at 12:36 pm that a person VERY knowledgable about Illinois sales tax policy has convinced me a universal sales tax on all goods and services with NO exemptions of any kind could replace the existing income tax. I have to rely on their estimates, but their figures suggest it could work.

    It appears to be doable. It could be done over 3 years or so. In fact, that person suggested a very practical sequence of steps (that I hope I’ve properly identified and repeated):

    1) Expand the sales tax to all services at an initial 1% rate (no county / local split) in order to set up the system on services and fully identify the taxable extent (instead of relying on the various estimates or studies done to date)

    2) Eliminate all exemptions to the sales tax

    3) Identify the universal sales tax rate for all good and services combined that would slightly exceed the existing combination of income tax and sales tax in revenue but be lower that the current sales tax rate on goods.

    4) (I hope I’ve got this right …) If needed, impose a simple gross receipts tax with no special exemptions on businesses to make up any shortfall.

Sorry, comments for this post are now closed.

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