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* The Q&A after this event should be interesting because it’ll be the first time Gov. Pat Quinn has spoken publicly since the state’s credit rating was downgraded. We’ll be covering it live in this post, so make sure to come back at 11 o’clock…
Gov. Pat Quinn is expected to sign legislation aimed at helping poor families keep more of what they earn.
Under the bill, the state’s earned-income tax credit, which is now 5 percent of the federal credit, would climb to 7.5 percent next year and 10 percent the year after. A bill signing is planned for Tuesday in Chicago.
The new law would increase the personal exemption by $50 to $2,050. That’s the amount of money exempt from income taxes for each person. The law would also increase the amount each year by the rate of inflation.
The personal exemption won’t mean much money at all, but it will eventually be significant in the long term. The very long term. The EITC aspect is more important in the short term…
The bill doubles the Earned Income Tax Credit over time. For a family with three children earning around $30,000 annually, it will mean about 200 dollars more a year.
According to a recent study by the Heartland Alliance, more than one million Illinoisans now receive the Earned Income Tax Credit. Talbot explains that it’s a credit for those at the bottom of the pay scale who often have to make sacrifices just to keep food on the table.
“Now, parents will be able to stretch their hard-earned income just a little bit further as they take care of their kids.”
* From a press release…
In fact, as a percentage of their earnings, Illinois’ lowest‐income families paid three times as much as the wealthiest households on state and local taxes in 2007, according to the Institute on Taxation and Economic Policy. That disparity would be even greater without the help of the existing Illinois EITC; a stronger tax credit over the next couple of years should help reduce the gap somewhat.
The state will be live-streaming this event starting at 11 o’clock this morning. You can watch and/or listen by clicking here.
…Adding… The press releases and related articles are starting to roll in, so I’ll just open up the ScribbleLive program now. BlackBerry users should click here, everyone else can just kick back and watch…
posted by Rich Miller
Tuesday, Jan 10, 12 @ 10:03 am
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The arguments in favor of a graduated state income tax are legion. The bottom line is that the poor are hurt by a flat tax far more than the rest of us.
Comment by Aldyth Tuesday, Jan 10, 12 @ 10:09 am
And here I thought the poor did not pay an income tax and received an earned income credit.
If the threshold of when the poor have to pay income taxes is too low, there is nothing in the constitution that prevents a higher exemption in order to raise the floor.
Comment by Plutocrat03 Tuesday, Jan 10, 12 @ 10:15 am
Why is the downgrade even important?
There is an insatiable demand for Illinois debt in the marketplace that is keeping the rates low.
Comment by Downgrade THIS... Tuesday, Jan 10, 12 @ 10:16 am
===there is nothing in the constitution that prevents a higher exemption in order to raise the floor. ===
Yes, there is. At least, the state’s courts have interpreted it that way. Too high of an exemption and it gets tossed out because it violates the “flat tax” provision.
Comment by Rich Miller Tuesday, Jan 10, 12 @ 10:44 am
Illinois was given the worst credit rating of all states so what does the Governer do? Why hand out tax benefits to the poor. Lets face it the real poor one in Illinois is the state itself.
Comment by Informer Tuesday, Jan 10, 12 @ 10:45 am
===Why hand out tax benefits to the poor===
Perhaps you might want to read some of the links before posting auto-knee-jerk responses.
===There is an insatiable demand for Illinois debt in the marketplace that is keeping the rates low. ===
You might wanna read one of the above links as well.
Comment by Rich Miller Tuesday, Jan 10, 12 @ 10:48 am
Illinois debt rates are not so low for tax exempt bonds these days.
Comment by Informer Tuesday, Jan 10, 12 @ 10:49 am
Great fun with percentages…I see the point of raising the EITC, but it knocks off one of Illinois saving economic graces.
Flat property tax and flat income tax tie the whole state together. Exempting one politically favored group or another divides the State and increases the opportunity to blame others for the States predicaments.
JBP
Comment by JP Tuesday, Jan 10, 12 @ 11:08 am
Not that long ago, there would have been a grand bipartisan signing ceremony for an expansion of the EITC, the brainchild of Milton Friedman championed by Ronald Reagan. Times change.
I used to work a lot with the rating agency folks, and their analysts are some of the sharpest knives in the drawer, really top notch.
But those rating committees….
How was it that subprime mortgage securities went from AAA to junk overnight? How was it that Enron paper was investment grade and the company No. 7 on the Fortune 100 until the day it was discovered they were an empty shell?
How do you have the cojones to downgrade the United States of America, and for what purpose, particularly when the market is lending it money at historic lows?
How do you continually dump on a borrower — the State of Illinois — that has never been late, much less missed, a debt obligation payment in nearly 200 years, and has statutory and sovereign authority to ensure that it never will? How do you do it when the market is clamoring for its paper?
Those rating committees are bad news. There’s bad faith there. In an instant communications, 24-hour trading and news cycle, they can cash in on inside information. They’re part of the pump-and-dump Wall Street culture that produces nothing but profits for them, and misery for the rest of us.
Comment by wordslinger Tuesday, Jan 10, 12 @ 11:10 am
Yesterday’s headline: state is broke, raise taxes, cut retirees
Today’s headline: new spending program, new tax break
repeat, repeat, repeat…
Comment by Liberty First Tuesday, Jan 10, 12 @ 11:28 am
“How do you continually dump on a borrower — the State of Illinois — that has never been late, much less missed, a debt obligation payment in nearly 200 years”
By actually reading a balance sheet rather than listening to Political PR, I assume.
Comment by JP Tuesday, Jan 10, 12 @ 11:35 am
I fail to see that my response was knee jerk. Illinois just had a major tax increase. Supposedly that tax increase was to be temporary and pay for the cash crunch the state was in rather than to come up with new ways to restructure the tax laws to favor a certain class of individuals (and corporations for that matter).
No knee jerk here, just sayin it like it is
Comment by Informer Tuesday, Jan 10, 12 @ 11:51 am
- By actually reading a balance sheet rather than listening to Political PR, I assume. -
Yeah, judging by the AAA ratings given during the subprime mortgage fiasco, I’m guessing these folks are all about the balance sheets.
Comment by Small Town Liberal Tuesday, Jan 10, 12 @ 12:25 pm
It is sort of a man bites dog story when a Rating Agency does the right thing.
If one can read a balance sheet, then it is quite likely that Illinois financial risk merits a lower grade bond rating.
jbp
Comment by JP Tuesday, Jan 10, 12 @ 12:40 pm
===If one can read a balance sheet,===
The difference is that Illinois is not a corporation. It is a sovereign government with constitutional and statutory provisions regarding pension funding and bonded indebtedness. Bondholders, by law, get paid first. So, sorry, but it’s not all about the balance sheet.
Comment by Rich Miller Tuesday, Jan 10, 12 @ 12:44 pm
Maybe I sound silly for asking, but is there somewhere a report that values the state’s fixed assets? I don’t remember one. Without that, I’m not sure what a balance sheet would represent. Isn’t what we really see more of a projected I&E statement, plus long term debt?
Comment by steve schnorf Tuesday, Jan 10, 12 @ 12:55 pm
By the way, JP, would you not agree that the worst rated FFC debt of any US state is less risky than the highest rated corporate debt? If so, how do the ratings make any real sense to anyone trying to assess risk of debt?
Comment by steve schnorf Tuesday, Jan 10, 12 @ 12:59 pm
JP, what balance sheet are you talking about? Can we all see it?
Your child-like faith in the objective wisdom of the rating committees is touching.
Tell me, though, how do you square a AAA rating for subprime mortgage securities and a lower rate for a sovereign state statutorily obligated to put bondholders first that has a perfect credit history for nearly 200 years as to bonded indebtedness?
What’s the secret we’re all missing?
Comment by wordslinger Tuesday, Jan 10, 12 @ 1:03 pm
I don’t believe a single letter that comes out of the rating agencies in general. I can look over the financial statements and projections of the State of Illinois and make the call that we are not in good shape. If the rating agencies concur, so be it.
And yes Steve, government debt is in general a lower risk than corporate debt. I am not sure that they are claiming to be able to compare a AA rating for corporate debt vs. a AA rating for State debt. If so, the market probably discounts that.
JBP
Comment by JP Tuesday, Jan 10, 12 @ 1:09 pm
JP, I didn’t say “in general”, I already know that. What I asked was if you agreed that the lowest rated state GO debt was less risky than the highest rated corporate debt. Do you? And if that’s the case, isn’t this pretty much a lot of hullabaloo over nothing, other than the odd ways of the rating agencies’ lack of forthrightness and transparency?
Comment by steve schnorf Tuesday, Jan 10, 12 @ 1:30 pm
We should not let the tail wag the dog.
Don’t get me wrong, I find the analyses of bond-rating agencies fascinating stuff, and I know to some audiences, they are really compelling.
But nowhere in the Constitution does it say that improving our bond-rating is an end goal of state government.
In fact, unless someone is actually advocating a plan to issue more bonds, any changes in our bond rating are pretty moot, aren’t they?
We also need to understand that budgets and taxes are not the end-goal of our Constitution, either…they are tools that we’ve created to achieve our end goals, laid out generally in the Preamble:
“provide for the health, safety and welfare of the people; maintain a representative and orderly government; eliminate poverty and inequality;
assure legal, social and economic justice; provide
opportunity for the fullest development of the individual; insure domestic tranquility; provide for the common defense; and secure the blessings of freedom and liberty to ourselves and our posterity”
Budgets are just a step-by-step road map for reaching those longer term objectives, and taxes are just the gasoline in the tank.
Anyone who thinks the end goal is lower taxes and a balanced budget…in that order…ought to introduce an amendment abolishing government tomorrow. Taxes will be Zero and the budget will be necessarily balanced.
Comment by Yellow Dog Democrat Tuesday, Jan 10, 12 @ 2:10 pm
Steve, I say “in general” because there could be some instance where it is not true, but sure, pretty much any State bonds are safer than Corporate bonds.
Relying on ratings agencies has proven time and again a suckers game, much like neglecting a “goal of lower taxes and a balanced budget”…while blowing $2 Million on the Old Town School of Folk Music etc is similarly being played for a sucker.
JBP
Comment by JP Tuesday, Jan 10, 12 @ 3:05 pm
Poignant observations, Wordslinger.
Makes me wonder if the rating downgrade is more about election year antics. Trash the adopted state & campaign hq home of our liberal only when seen through the eyes of conservatives Prez.
The state should get serious about bypassing the rating agencies and the omniscient market by going straight to savers seeking more than the 1% offered at local banks.
Announce a State of Illinois Saving Account program.
Comment by Kasich Walker, Jr. Tuesday, Jan 10, 12 @ 5:50 pm
I think the downgrade is more of an early warning about what happens if the tax increase is allowed to expire, Kasich
Comment by Yellow Dog Democrat Tuesday, Jan 10, 12 @ 7:58 pm
Schnorf, just saw your post. The State Comptroller’s comprehensive annual financial report audited balance sheet at Jun 30, 2010 includes fixed assets, net of depreciation including infrastructure (highways, bridges, etc.). They totaled around $19 billion. Unfortunately, long-term liabilities were $55 billion.
Comment by Soccertease Tuesday, Jan 10, 12 @ 8:00 pm
st, thanks. I looked it up
Comment by steve schnorf Tuesday, Jan 10, 12 @ 9:52 pm
hear, hear, Wordslinger.
I know enough about Bond Ratings to know that I have absolutely no clue what the logic is behind them. Perhaps these “committees” have been the culprit of my confusion…
Comment by Danny Tuesday, Jan 10, 12 @ 10:28 pm
=== In fact, as a percentage of their earnings, Illinois’ lowest‐income families paid three times as much as the wealthiest households on state and local taxes in 2007, according to the Institute on Taxation and Economic Policy. ===
Actually this is not true with the EITC on a family to family basis. Because, Those with children that make around $15000 or less, not only pay no tax at all, they get a refund of their EITC. Those that make over that much still pay less in taxes because of this credit. The only way the claim may work is if you lump all the low income people together and say as a group they pay more than wealthy people. However, that only works because there are many more people at the low end of the income scale. It does not mention that many of those low income families pay no income taxes at all but still get refund checks based on the EITC from the IRS and the State of Illinois.
Comment by KurtInSpringfield Wednesday, Jan 11, 12 @ 8:10 am
Kis, the statement says as a percent of income, not gross dollars, and note that it says state and local, not just income tax. Of course sales taxes are pretty regressive on low income people.
Comment by steve schnorf Wednesday, Jan 11, 12 @ 8:49 am
“sales taxes are pretty regressive on low income people” no, sales taxes are flat on everyone regardless of income. Regressive would be charging lower income people a higher tax rate than higher income people.
JBP
Comment by JP Wednesday, Jan 11, 12 @ 9:31 am
JP, I’m not sure you understand what Schnorf meant about regressivity. It’s about the percent of income paid paid in taxes, not necessarily the tax percentage. That percent of income is higher for the poor and working classes.
Comment by Rich Miller Wednesday, Jan 11, 12 @ 9:37 am
That is true Rich, but that is how flat taxes work.
*Regressive* taxes would apply a higher sales tax rate as a percent of price of product purchased to lower income people, like *progressive* income taxes apply a higher rate to higher income people. Sales taxes are not like that, they are flat across all income levels.
It’s the non-arithmetical definition of the word “regressive” that is commonly misused when applied to taxation.
JBP
Comment by JP Wednesday, Jan 11, 12 @ 10:08 am