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Spin gone awry and the future of the “temporary” income tax

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Illinois

* Most of the statements from Gov. Pat Quinn’s office Friday afternoon regarding the Moody’s downgrade were carefully constructed. This one was not…

A spokeswoman for Gov. Quinn called the Moody’s downgrade of Illinois an “outlier decision.” She said two other Wall Street rating agencies affirmed the state’s previous credit rating.

Yeah, the other two agencies affirmed the state’s current ratings, but they whacked Illinois hard nonetheless.

* Meanwhile, my statewide syndicated newspaper column is about the future of the “temporary” income tax…

He didn’t come out and say it, but Gov. Pat Quinn has apparently abandoned his promise to allow the “temporary” personal and corporate income tax hikes to expire three years from now.

The governor submitted a three-year revenue and spending projection last week as he’s required to do by a new Illinois law. Its bottom line is that revenue is simply not high enough to match what Quinn wants to spend. According to his projections, the state will finish this fiscal year with a $507 million deficit, despite the recent tax increases.

Overall, Quinn wants to reduce the state’s operating budget by 7 percent next fiscal year, but much of that “cut” actually is a $400 million decrease in the availability of what is known as “salvage” money, or unspent appropriations. Quinn then projects no more cuts or increases through 2015.

The governor also believes he can keep health care spending flat for the next three years. The Senate Republicans say those projections are way off the mark. Health care inflation is rampant. The Republicans say Medicaid spending alone will have to rise by $2 billion to 3 billion over the next few years to keep pace with current laws.

Quinn wants to change some of those laws, but that would mean reducing payouts to providers (doctors and hospitals have powerful lobbyists) and kicking people off coverage and making them pay more during widespread economic hardship. Not easy, to say the least.

Quinn’s proposed cuts are outmatched by pension spending, which will continue to increase by leaps and bounds. Years of underfunding the systems and a 1990s-era law that delayed dealing with the problem have combined to squeeze the budget hard.

And then we arrive at fiscal 2015, when the governor projects a budget deficit of $818 million. As the Senate Republicans point out with their health care spending projections, that figure could be way low.

It wasn’t in his report, but Quinn’s projected deficit will double the very next year because most of the income tax increase is set to expire in January 2015, exactly halfway through the 2015 fiscal year.

The governor has promised to allow the tax increase to expire on schedule, most prominently during an appearance in Peoria with Caterpillar’s chief executive Doug Oberhelman, who has repeatedly complained about Illinois’ poor business climate.

Yet there’s no way to get rid of all that income tax increase with the governor’s three-year road map. He simply hasn’t made the cuts or produced the necessary revenue to keep the books in balance.

By Quinn’s own reckoning, all or at least some of that tax increase will have to remain. And if the Senate Republicans are right about health care spending projections, that 2016 deficit will be close to $5 billion, which is pretty much right back where we started.

I talked the other day to a Democratic political operative who said he was trying to figure out a way to explain to voters the need for the higher income tax and why the state still has to cut programs and can’t pay its bills. He said he had put a lot of thought into this problem but was having no luck and asked if I had any ideas.

My advice was simple politics — change the subject and attack the other side for something else.

There’s just no way on God’s green Earth you can win that argument, I said. You believe the tax hikes were necessary but saying that mass misery would’ve resulted had they not passed isn’t easy to do when most people firmly believe that simply cutting “waste and inefficiency” will solve all our problems.

Illinoisans have been so inundated with media hype about businesses threatening to leave and state vendors suffering from late payments that no amount of political spin can alter that negative perception.

And Quinn’s spending and revenue projections show we’re heading back to the edge of the abyss in three years — either politically via what will surely be a hugely unpopular permanent tax increase or governmentally if the tax hike expires and the state plunges back into the red. Either way, it won’t be pretty.

* Related…

* Quinn optimistic about odds for Chicago casino agreement this year - But governor still opposes slots at racetracks — and that could be a deal breaker

* State behind on MAP Grant payments

* A plea for Medicaid mercy

* Editorial: Bad signals coming from budget forecast

* Erickson: Budget report starts 2012 on a downer

* Finke: Illinois starting the new year in arrears

* Cost of teacher pensions swamping classroom needs, report says

* Editorial: Pension reform welcome, but bankrupt Illinois needs more

* Public pensions loom as a huge problem in Illinois

* Editorial: Pension fix a preview of ‘reform’ difficulties

* Moody’s cuts Illinois GO rating to A2 from A1

* Editorial: State pension loopholes must be plugged

posted by Rich Miller
Monday, Jan 9, 12 @ 9:14 am

Comments

Quinn’s budget director recently telling the Tribune that the state/he is “struggling” to cope with the budget situation was another really great way to promote Illinois.
If you were a up and coming corp CEO would you want to deal with the Quinndergarten?

Comment by Michelle Flaherty Monday, Jan 9, 12 @ 9:23 am
Quinndergarten. I love it.

Comment by Springfield Skeptic Monday, Jan 9, 12 @ 9:28 am
There’s still time for interested parties to offer alternatives with real numbers.

There are a lot of deep thinkers among the GA and various interests, they all have stuff — start putting pencil to paper.

It’s not like problems ever go away. You just move on to a new set of problems.

Comment by wordslinger Monday, Jan 9, 12 @ 9:32 am
“He didn’t come out and say it, but Gov. Pat Quinn has apparently abandoned his promise to allow the “temporary” personal and corporate income tax hikes to expire three years from now.”

I wish you could see my shocked face on the other side of this computer screen. Who would have ever predicted this?

Comment by Holdingontomywallet Monday, Jan 9, 12 @ 9:34 am
When was the last time a “temporary” tax increase actually was temporary?

Comment by Behind The Scenes Monday, Jan 9, 12 @ 9:37 am
And, of course, the taxes will expire in January 2015 unless the GA votes to extend them and the governor signs off.

Ample time for anti-taxers to campaign on the issue and seize control of the GA and the governor’s office. Then, they can govern.

Comment by wordslinger Monday, Jan 9, 12 @ 9:40 am
Will Quinn be around in 2015?

Comment by Jade_Rabbit Monday, Jan 9, 12 @ 9:42 am
I dont think it would surprise many people if the temporary cut turned out to be permanent. That being said stronger economic growth would provide a long run solution to most of these problems. ITs kind of hard to call a decision by one of only three agencies an outlier.

Comment by RMWStanford Monday, Jan 9, 12 @ 9:48 am
I’m not so much worried about the current tax becoming permanent as I am about another tax increase being needed because it is very clear that the Springfield clan cannot manage its budget at all.

Comment by Old Milwaukee Monday, Jan 9, 12 @ 9:53 am
===When was the last time a “temporary” tax increase actually was temporary? ===

The last temporary income tax hike was made permanent after a Republican campaigned for governor on that very topic.

The previous temporary income tax increase was allowed to expire.

Comment by Rich Miller Monday, Jan 9, 12 @ 9:59 am
The temporary increase should be allowed to expire and be replaced by a fair tax structure with graduated rates. It’s time to make rich people and big corporations pay their fair share.

That’s the way to prevent further harmful cuts to education, health care, public safety and jobs while closing the unfair loopholes that let rich people and big corporations get away with paying a lower effective tax rate than working people in this state.

Comment by Reality Check Monday, Jan 9, 12 @ 10:07 am
According to the news story on the Moodys rate change

“The state is currently projecting a $507 million deficit in the current budget.”

As we all know, the budget passed each year should balance. Thus the question comes to my mind: 1) was the “temporary” income tax increase passed last year too small or 2) were the “budget cuts” agreed to last year too small or 3) both option 1 and 2?

Comment by Left Out Monday, Jan 9, 12 @ 10:09 am
These are big, difficult problems, for which there are solutions which are complex, multi-year and painful for all kinds of constituencies. To really solve them, many good politicians will have to be willing to abandon their constituent-service ideals for the short term, and to risk almost certainly losing their jobs. The time for half measures is over.

Those who espouse simplistic solutions, are wasting our time.

That David Vaught is “struggling” with these issues is appropriate, and for him to be transparent about it reflects well both on his competence and his honesty.

I agree with Wordslinger that there are a lot of “deep thinkers” in the GA and interested groups to throw out proposals, but are there enough willing personally to put everything on the line? We have to hope so.

Comment by walkinfool Monday, Jan 9, 12 @ 10:39 am
Fitch already had Illinois at A, equivalent to Moody’s A2. S&P has the State at A+ but with a negative outlook. This indicates a downward trend, not necessarily that a downgrade is imminent. Moody’s outlook had been negative before the downgrade and is now stable, like Fitch. Hard to call it an outlier.

Comment by Anonymous Monday, Jan 9, 12 @ 10:43 am
From the San Francisco Chronicle - “With the downgrade, Moody’s rates Illinois one step lower than California, at A1.”

So, if I understand this, IL is now rated worse than the poster child state for financial problems.

And IL politicians get to skate by for another 3 years, while all the IL financial problems keep getting worse? Then hope the voters forget?

Comment by sal-says Monday, Jan 9, 12 @ 10:55 am
===And IL politicians get to skate by for another 3 years===

All House and Senate members are up for election this November.

Comment by Rich Miller Monday, Jan 9, 12 @ 10:59 am
It’s time to make rich people and big corporations pay their fair share.

____

What’s to stop all the nonsense that we’ve seen with Catepillar, Sears and CME? If the state and local bodies would just collect the taxes as they are levied, there would be less of an issue here. Unfortunately, every elected official whats to give something back. Most of the time it’s earmarks in the budget or a break on the tax burden.

Comment by Jade_Rabbit Monday, Jan 9, 12 @ 11:00 am
From my reading, the 3 year projection addresses annual deficit projections but not overall debt projections.

Will IL be carrying our current level of debt (plus the annual deficits) throughout this time? Or will we be paying any of our debt down?

Is there a separate comprehensive plan to address that? Or are we just treading water?

Sorry for the 20 ?’s.

Comment by Shock & Awww(e) Monday, Jan 9, 12 @ 11:14 am
Here’s a reality check, Reality Check: Under the Illinois State Constitution, the income tax rate must be flat. There are some tweaks that can be made to increase fairness, such as increasing the value of the personal exemption and levying a surtax on the very top earners. But we had a chance to deal with this by holding a Constitutional Convention, and it was nixed by voters. So no dice.

Comment by soccermom Monday, Jan 9, 12 @ 11:27 am
I am well aware of the requirements to amend the constitution. A measure to allow a fair tax structure with graduated rates could be approved by voters in 2014 and instituted for 2015.

Comment by Reality Check Monday, Jan 9, 12 @ 11:34 am
Sorry, RC — Soccermom is a bit cranky on this Monday morning. But it should be noted — the threshhold is pretty high: 3/5ths in the GA, and 3/5ths of voters approving. I was very disappointed that we didn’t tackle this in the decennial ConCon

Comment by soccermom Monday, Jan 9, 12 @ 12:05 pm
===I was very disappointed that we didn’t tackle this in the decennial ConCon ===

Thank (in part) the League of Women Voters, who opposed ConCon because they believed that getting a constitutional amendment on the ballot was no big deal, until they tried to do it the following year and failed miserably.

Comment by Rich Miller Monday, Jan 9, 12 @ 12:08 pm
== Thank (in part) the League of Women Voters ==

At least some of the teacher’s unions were also in on the opposition, supposedly because there was a risk that public pensions would be a topic for discussion.

I got an earful about it from certain publicly-employed relatives…

Comment by JN Monday, Jan 9, 12 @ 12:25 pm
Quinn lied about the tax increase to get elected and then lied that it will be temporary. No one should be surprised

Comment by Fed up Monday, Jan 9, 12 @ 12:30 pm
@soccermom, fixing the state’s broken, unfair tax structure won’t be easy, but a fair tax with graduated rates is the right thing to do. It also happens to be good politics.

Comment by Reality Check Monday, Jan 9, 12 @ 12:47 pm
Constitutional amendments can be placed on the ballot by a joint resolution of the Illinois General Assembly.

It would be popular, although I’d have to look at the data to see if it has a better chance of passing in 2012 or 2014.

Comment by Yellow Dog Democrat Monday, Jan 9, 12 @ 12:49 pm
Litmus Test For Change In Illinois: When my Congresswoman, Jan Schakowsky, (and others like her) is prohibited from collecting her $22,000 plus annual Illinois Legislative pension from only eight years in the Illinois House, while collecting her $160,000 plus salary as a US Representative. And she’s been collecting her state pension for about 10 years, starting when she was around 57, best I can figure according to fed disclosure records. And this is just the tip of the iceberg of the Illinois and local government pension bonanza. And there is no central location where anyone can track largesse going out in the 600 plus Illinois state and local government pension plans. No one knows where it will go until it gets there, so budget projections are a lot of hooey because they can’t possibly be independently verified against consolidated and detailed pension projections.

Comment by Cook County Commoner Monday, Jan 9, 12 @ 12:58 pm
I’m quite amazed at the reaction from so many of the commenters. Everyone I know who had any idea what they were talking about said for the past 4 or 5 years that it was going to take a tax increase plus very significant cuts to spending to get us back in sync.

The Governor has persuaded the GA to make some cuts. But, for example, remember the Administration asked for rate cuts in Medicaid last year. The GA refused, and instead simply under-appropriated. That decision costs the FY 13 budget around $3B.

More cuts need to be made. They will be significant, and painful. There will be little appetite for many of them, even among Rs.

I applaud David Vaught for being forthright. Of course it is a struggle. He also has the virtue of being far less crude in describing it than I would have been.

Pat Quinn is now only the second Governor to significantly reduce GRF appropriations from one Fiscal Year to the next since imposition of the original income tax. He has started down the path his predecessor needed to follow. The GA needs to help him, and we need to support him in doing so, unless he refuses to try to do enough.

My most earnest advice to him is to introduce a truly balanced budget next month, and I think he will find GA members scrambling to help him find ways to avoid needing to pass it.

Comment by steve schnorf Monday, Jan 9, 12 @ 1:45 pm
===Pat Quinn is now only the second Governor to significantly reduce GRF appropriations from one Fiscal Year to the next ===

Yeah, he signed the bills into law. Beyond that, not much.

Comment by Rich Miller Monday, Jan 9, 12 @ 1:48 pm
Rich, he’s going to be Governor for at least 3 more years. He is moving in the right direction, perhaps not as vigorously as some of us would wish. Reaching the budget numbers laid out in his 3 year plan will require extensive cuts in programs; it looks to me like more than $5B worth. That would be very real.

Comment by steve schnorf Monday, Jan 9, 12 @ 2:02 pm
“I talked the other day to a Democratic political operative who said he was trying to figure out a way to explain to voters the need for the higher income tax and why the state still has to cut programs and can’t pay its bills. He said he had put a lot of thought into this problem but was having no luck and asked if I had any ideas.”

My advice would be to start with the truth– the cold, hard facts. Talk about the underfunding over the course of decades. Talk about the gimmies on top of gimmies in pension sweeteners. Name names. Republicans and Democrats alike. And then– and ONLY then– talk about how your governing strategy will be different, to justify your need for another taxpayer bailout.

But I expect more lying, instead. As Fed Up rightly noted, Quinn lied about the amount of the tax increase to get elected. Why would we expect him to tell the truth about its expiring? It’s only his word, after all, which is clearly worth nothing.

Comment by Anonymous Monday, Jan 9, 12 @ 4:11 pm
Re: Quinn lying about a temporary increase. The increase passed by the GA and signed by Quinn is temporary. In order to be made permanent the GA would have to pass another bill.

Say what you want about Quinn, but on this point he is not lying. Save your vitriol for another topic.

Comment by DuPage Dave Monday, Jan 9, 12 @ 7:38 pm
{either politically via what will surely be a hugely unpopular permanent tax increase or governmentally if the tax hike expires and the state plunges back into the red. }

How can one plunge “back into the red” if pne never left the red in the first place?

Comment by Quinn T. Sential Monday, Jan 9, 12 @ 9:35 pm