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Saturday, August 17, 2019

Pritzker promises over $10 billion in new spending on $3.4 billion progressive tax hike

Their View

By Tivas Gupta and Adam Schuster, Illinois Policy Institute | Aug 12, 2019


Gov. J.B. Pritzker is promising more than he can deliver, subjecting Illinois’ middle class to the threat of future tax hikes.

The first-term governor carried a wealth of costly commitments from the campaign trail into office. This includes: closing the structural budget deficit, lowering or freezing property taxes, increasing funding for education, reducing the state’s massive pension liability and paying down its unpaid bill backlog.

Together, the cost of those noble goals totals more than $10 billion annually. Unfortunately, that’s far more than the state would be able to manage using the governor’s proposed revenue source: a graduated, or “progressive,” income tax system.

Pritzker’s “fair tax” plan would bring in just $3.4 billion, according to his own administration’s projections. That comes nowhere near the revenue needed to deliver on his spending promises, leaving middle-class families on the hook to cover the shortfall.

Below is a list of the individual costs for each of Pritzker’s spending proposals:

Closing the structural deficit ($1.9B)

When Pritzker unveiled his “fair tax” plan, he claimed it would “eliminate the budget deficit.”

The earliest the state could generate revenue from a progressive tax is fiscal year 2021, pending the outcome of a November 2020 voter referendum on the measure. The Governor’s Office of Management & Budget projects the deficit will be $3.4 billion in fiscal year 2021.

A portion of the cost will be covered by revenues from Pritzker’s 21 new taxes and fee hikes, amounting to around $1.5 billion, which will lower the fiscal year 2021 deficit to $1.9 billion.

Those projections include several optimistic revenue estimates, including $500 million in marijuana revenue. That projection is very generous given the restrictions and regulations on the new industry. However, to give the governor’s income tax plan the benefit of the doubt, this analysis uses the most favorable estimates.

Paying down the unpaid bill backlog ($1.8B)

In a March press conference, Pritzker listed “[paying] down the backlog” of unpaid bills as one of the primary goals of the progressive income tax. Illinois currently faces a bill backlog of more than $6 billion.

Pritzker issued $1.2 billion in bonds for the bill backlog, which will cost roughly $191 million annually to finance. All else being equal, this should reduce the bill backlog to around $5 billion, which comes out to $1.7 billion per year divided over the remaining three years of Pritzker’s term. Financing the bonds and paying down the rest of the backlog will cost $1.8 billion alone, swallowing at least half of the revenue from Pritzker’s progressive income tax proposal.

Reducing pension debt ($200M)

Among the most ambitious of Pritzker’s promises is to use the progressive tax to “reduce the state’s pension liability.”

Pritzker said he would dedicate $200 million to fund pensions. This would fall far short of fully funding the state’s pension system, not to mention the cost of financing its pension obligation bonds. Together, those costs could total between $300 million and $1.5 billion.

These costs bring the bill for Pritzker’s promises up to around $3.7 billion – already exceeding the projected revenue his “fair tax” plan would generate. Using even slightly less optimistic estimates would quickly put Illinois much further in the red.

Increasing education funding ($6.4B)

Although Pritzker has offered few details about how his progressive tax hike would fund his education plans, he frequently tied education funding to the need for a “fair tax” in debates and campaign ads.

Pritzker also promised to “lower or freeze property taxes” with the enactment of a progressive income tax. As the state has slowed its spending for schools, local governments have hiked property taxes to make up the difference. Pritzker has claimed he’d use progressive tax revenue to both increase education funding and deliver property tax relief.

The Illinois Policy Institute pegged the cost of fully funding education at $6.7 billion. However, Pritzker used other revenue sources to increase the funding formula by $375 million in the last budget, bringing the amount needed to fully fund education down to around $6.4 billion. Adding increased education funding brings the total cost of Pritzker’s promises to $10.3 billion.

The real cost ($10.3B)

Springfield has shown that spending beyond its means always leads to the same outcome: more tax hikes.

As Pritzker proposes paying for $10 billion in new spending with a $3.4 billion tax hike, Illinois’ middle class will eventually suffer income tax hikes under a “fair tax” system to cover the shortfall.

This total does not even include some of Pritzker’s more expensive promises, including universal preschool or a public option for health care. These proposals would require billions more in new spending.

Under Pritzker’s “fair tax,” Springfield would have the ability to hike income taxes one bracket at a time, shielding lawmakers from the political backlash they face raising taxes on all Illinoisans collectively under a flat rate.

Middle-class taxpayers need not look further than Pritzker’s own spending promises to see the true cost of a progressive income tax in Illinois.

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