* Greg Hinz…
Under the proposal from the Civic Committee of the Commercial Club, the state would increase personal and corporate income taxes by one percentage point across the board, pulling in $4 billion. The group would net another $1.9 billion by beginning to tax retirement income, and $500 million by extending the sales tax to cover more consumer services.
That $6 billion a year in higher taxes would be matched by $2 billion in spending cuts, half in general state spending and half in trims to health insurance for state workers and retirees. But the plan notably does not include any projected savings from cuts in pensions by requiring workers to pay more, accept reduced benefits, or both.
The full report is here.
* OK, first of all, Pritzker ran on an oft-repeated promise to implement a progressive income tax and said he wouldn’t raise taxes on regular folks. He’d have to break that promise. The only way I see him doing that is if he can’t get a graduated tax proposal through the General Assembly and approved by the voters.
Secondly, Pritzker ran hard against a tax on retirement income. So, following the Civic Committee’s plan would require a gigantic flip-flop in order to implement a horribly unpopular tax. Paul Simon Institute..
A recurring idea is for the state to tax retirement income, such as pensions and social security. This idea is widely unpopular, with 74 percent opposing and only 22 percent in favor.
Proposing such a thing is infinitely easier said (from Chicago) than done (under the Dome).
Also, the Illinois Supreme Court decided in Kanerva v. Weems that retiree health care costs are to be treated the same as pension benefits. So, the Civic Committee has a work-around…
However, the ruling does not apply to new employees, and the State could create a separate retiree healthcare plan for new employees with a reduced premium subsidy structure that would be applied going forward. It is unclear how much the State could save from reducing the premium subsidy for new employees, but the State should pursue the implementation of a separate retiree healthcare plan for new employees.
* And their billion dollars in other budget cuts comes from this…
Reduce State spending through operational improvements
* But, overall, the numbers make some real fiscal sense…
Specifically, it wants to take the current funding plan in which the state pays about $8.5 billion a year and add an extra $2 billion a year. Doing so would get the state to the actuarial level in just four years, and result in 93 percent funding of the pension plans by 2045. By paying earlier, the state would save at least $46 million in interest costs on pension debt over the next three decades—not counting the potential upgrade of the state’s bond rating and more economic growth, the report asserts.
Such “front funding” of pension debt indeed has been recommended by numerous officials lately including Pritzker. But there has been no agreement on where to find the needed revenue.
Of the $8 billion in new revenue and spending cuts, roughly $3 billion will be needed each year to cover the state’s growing structural deficit, according to the committee’s math. Another $1.5 billion would go to pay short-term, non-pension debt; $1 billion into a new reserve fund; and $2 billion into the extra pension payment.
…Adding… From a pal…
Remember when Fahner and the Civic Committee were personally meeting with the ratings agencies to get the state downgraded? Hard to have imagined this day coming. Welcome to reality, boys and girls
…Adding… Wordslinger is probably spot-on…
I always thought the civvies obsession with pensions was really about heading off a call for a progressive income tax.
I think this particular tax increase proposal is the same.