* Press release…
Moody’s has written a new report on the current discussion regarding the State of Illinois’ (rated Baa3/stable outlook) potentially replacing its flat income tax system with a tiered, or “progressive” income tax for additional revenue. The report states that if Illinois makes the replacement, it would likely gain increased revenue-raising flexibility to tackle a growing pension burden and unbalanced budget, but in order to change to a progressive tax system voters must pass a state constitutional amendment, a politically difficult process.
“A positive outcome for the state’s credit standing would require that the new system yield substantial net new revenue, without material damage to the economy, and the new revenue be largely allocated to addressing the state’s retirement benefit liabilities on a recurring basis,” said Ted Hampton, Vice President & Senior Credit Officer
While the new flexibility to impose higher tax rates on wealthier residents offers the potential to help the state address its increasingly onerous pension funding burden, it would also leave the state more vulnerable to the volatility inherent in financial market performance and other sources of revenue that drive high-income tax payments. Illinois already relies on income taxes for about 44% of revenue, which could increase to more than 50% with progressive tax rates, depending on the tax rates ultimately adopted.
The report’s highlights include:
The scale and use of incremental revenue would determine credit effects. If the constitutional amendment ultimately passes, its impact would depend on the degree to which the state derives new resources and uses them to address core credit challenges, most prominently pension obligations.
Economic and revenue strength provides capacity for higher income tax rates. Industrial diversity and high wealth levels give Illinois the ability to support a higher tax burden, even though it already ranks above the 50-state average in terms of state and local government tax revenue as a share of GDP.
Flexibility to set multiple income tax rates would help Illinois, but not without risks. Increasing reliance on income tax revenues and on higher-earning taxpayers would expose the state to greater revenue volatility.
* The report takes note of the opponents’ claim that the progressive tax will drive people out of state…
However, while rising state tax burdens would likely have some impact, migration between states is more likely to reflect demographic or employment factors.
But that point about revenue volatility is important. Large fortunes rise and fall with the markets. Some money needs to be set aside to deal with this prospect.
- AndyIllini - Monday, May 6, 19 @ 12:09 pm:
=Some money needs to be set aside=
That shouldn’t be an issue, we have an outstanding track record of doing that…
Snark aside, they do provide good observations
- Highland IL - Monday, May 6, 19 @ 12:19 pm:
=== Easy for them to say. Come to some of the downstate counties where the average worker makes less than $40k a year and try taking another penny. ===
That’s not their plan.
- The Doc - Monday, May 6, 19 @ 12:22 pm:
==Easy for them to say. Come to some of the downstate counties where the average worker makes less than $40k a year and try taking another penny.==
Say what now?
- Fixer - Monday, May 6, 19 @ 12:24 pm:
Anonymous, that’s the exact opposite of what they’re doing. Focus Anonymous, focus.
- RNUG - Monday, May 6, 19 @ 12:25 pm:
== and the new revenue be largely allocated to addressing the state’s retirement benefit liabilities on a recurring basis, ==
Key phrase. But JB and the Democrats plan to spend it all on other stuff, and even short the pension systems for more new spending.
To me, this looks like a re-run from when the flat income tax was introduced with new / extra revenue factored in. In less than 4 years, the Legislature had spent all the new money and started shorting the pension systems.
- Grandson of Man - Monday, May 6, 19 @ 12:27 pm:
This is in line with other data. According to a study, income gains were much better for the 1% in Illinois over the last three decades.
Per another analysis, the rich reportedly thrived after the 2011 tax hike. Incomes of richest grew astronomically by 2014, 37.5% for those making annually over $1 million.
Hopefully House Democrats won’t succumb to anti-tax right wingers’ phony threats and crocodile tears. Pritzker and his allies have enough financial means to cover certain legislators for their votes.
- Liandro - Monday, May 6, 19 @ 12:28 pm:
“But JB and the Democrats plan to spend it all on other stuff, and even short the pension systems for more new spending.”
Yep. This is one of the key reasons many conservatives are against tax hikes: they get mismanaged such that core problems largely remain. That part of how we got here.
- wordslinger - Monday, May 6, 19 @ 12:30 pm:
–the investors that stand to lose BIG when Illinois defaults.–
Default on what? When? How?
You realize that Rauner ran up the backlog of unpaid bills to $16 billion, yet bondholders got paid first, on time and in full, by law?
That’s why the agencies’ ratings are irrelevant when it comes to measuring the risk of holding state bonded GO debt. By payment history and debt-service coverage, all states’ GO debts should be AAA.
- Generic Drone - Monday, May 6, 19 @ 12:34 pm:
Wouldn’t it be great if we had a party in Illinois who actually cared about the fiscal responsibilities they assume as legislators.
- JS Mill - Monday, May 6, 19 @ 1:13 pm:
=According to a study, income gains were much better for the 1% in Illinois over the last three decades.=
Has there ever been a time when the 1% did worse than everyone else? Probably not.
- Stuntman Bob's Brother - Monday, May 6, 19 @ 1:26 pm:
Has there ever been a time when the 1% did worse than everyone else? Probably not.
Likely in September of 1929, when many of them were taking swan dives from the 35th floor (didn’t the market drop like 90% in the decade following 1929?). That would be a darned interesting thing to read up on.
My guess is that for every guy who dropped out of the 1%, somebody else took his place /s.
- JIbba - Monday, May 6, 19 @ 2:07 pm:
Moodys: You can raise a little more revenue to deal with the structural deficit. Don’t blow it on new spending.
What is so hard about that, JB? Really disappointed.
- PublicServant - Monday, May 6, 19 @ 2:11 pm:
RNUG nails the spending side of the equation laid out by Moody’s. Pay down the debt. It’s not sexy, but then politicians ran it up in the first place, because actually governing was too hard for them. Pols have a never-ending supply of new ideas, but funding the old ideas is hard. JB, do the right (and politically difficult thing) for Illinois on the spending side as well as the revenue side. That’s why you were elected, and while you would have had my vote had you just said, “I’m going to shake up the 1%, and bring back Illinois.”, I had hoped that I was voting for someone who would do the fiscally responsible thing and pay the state’s debt before becoming Santa Claus.
- Blue Dog Dem - Monday, May 6, 19 @ 2:20 pm:
Has Moodys done an analysis on proposed kicking of pension can?
- Oswego Willy - Monday, May 6, 19 @ 4:49 pm:
This, to me, is left-handedly saying…
“Illinois ain’t Mississippi. A strong state like Illinois, diverse and wealthy can handle it because states like Mississippi can’t. Not all states are the same, so look at what each bring to their own set of circumstances”
- Anonymous - Monday, May 6, 19 @ 5:52 pm:
Illinois ain’t Mississippi? Illinois is strong state?
We are ranked 50th in fiscal health. Mississippi is ranked 36th, Alabama is 14th
Tell me more about how Illinois can handle higher taxes without acceleration the outmigration.
https://www.mercatus.org/statefiscalrankings
- Oswego Willy - Monday, May 6, 19 @ 6:03 pm:
===Tell me more about how Illinois can handle higher taxes without acceleration the outmigration.===
You think Mississippi and Alabama have a greater economic engine, are more diverse?
What is the GDP and size of those states’ economies… how about Illinois?
- Oswego Willy - Monday, May 6, 19 @ 6:08 pm:
Only California, Texas, New York, and Florida have larger economies.
High tax California and New York are holding their own with Texas and Florida.
Illinois, 5th, is the 18th largest economy, globally…
- Oswego Willy - Monday, May 6, 19 @ 6:19 pm:
Illinois has an economy 3+ times the size of Alabama
Illinois has an economy 7+ times the size of Mississippi
- Anonymous - Monday, May 6, 19 @ 6:25 pm:
Illinois leads the nation in outmigration before another tax hike.
California and New York aren’t far behind
It is possible to kill a golden goose with bad policies by state government
https://www.cato.org/blog/mapping-interstate-migration
- Oswego Willy - Monday, May 6, 19 @ 6:28 pm:
===Illinois leads the nation in outmigration before another tax hike.
California and New York aren’t far behind===
… and yet, the economies of all three are, by themselves, are economies in the top 18… in the world.
Illinois has an economy 3+ times the size of Alabama
Illinois has an economy 7+ times the size of Mississippi
Anything else?
- wordslinger - Monday, May 6, 19 @ 6:55 pm:
–We are ranked 50th in fiscal health. Mississippi is ranked 36th, Alabama is 14th–
Clearly, Alabama’s and Mississippi’s graduated income tax systems are a superior concept to Illinois’ anachronistic flat tax.
- Grandson of Man - Monday, May 6, 19 @ 6:59 pm:
“Illinois leads the nation in outmigration before another tax hike.”
It ain’t the rich leaving Illinois. They’re thriving here. Their income gains have by far exceeded those of others, even and especially after the 2011 tax hike.
- Pick a Name - Tuesday, May 7, 19 @ 8:41 am:
Grandson, the rich may still be in Illinois somewhat but more and more are becoming residents of states like Florida. Easy for many to work remotely and/or travel back and forth.
- Oswego Willy - Tuesday, May 7, 19 @ 8:50 am:
===…the rich may still be in Illinois somewhat but more and more are becoming residents of states like Florida===
Cite please.
Capitol Fax has cited work pointing to those of means staying and others like minorities leaving.
Aren’t you someone that says all these college (educated) folks come back to Chicago and Illinois, so how bad can the economy be, according to you, if these college grads choose Illinois to begin careers.
- wordslinger - Tuesday, May 7, 19 @ 9:02 am:
–Easy for many to work remotely and/or travel back and forth.–
Is it? Show me.
Ken Griffin has a $230 million crib in Palm Beach. He grew up in Florida. Why doesn’t he do it, because you say it’s “so easy?”
https://www.investmentnews.com/article/20180724/FREE/180729974/move-to-florida-to-pay-zero-state-personal-tax-fuggedaboutit
- wordslinger - Tuesday, May 7, 19 @ 10:49 am:
–Who says Griffin won’t move?–
LOL, he did. But I’m guessing, for you, he’s not a credible source on his own intentions. You like your conclusions, no matter how unsupported they are by facts.
https://www.chicagobusiness.com/finance-banking/billionaire-hedge-fund-owner-commits-chicago
- Pick a Name - Tuesday, May 7, 19 @ 1:40 pm:
Ya, cause people never change their minds and never say one thing and do another. SMH
- wordslinger - Tuesday, May 7, 19 @ 1:58 pm:
–Ya, cause people never change their minds and never say one thing and do another. –
You’re a laugh riot — he said it last week. The dude is worth ten billion dollars. He can live wherever he wants on the planet. He could have done it years ago.
I bet you’re one of those guys whose blackjack “system” is to double-down after every losing hand. Again. And again. And again….