By: Mark Glennon*
Governor Pritzker proposed a $41.5 billion “Rebuild Illinois” capital spending plan backed by a list of new middle class taxes. Its size probably will be cut and the projects to be funded remain to be negotiated, though widespread recognition of legitimate capital needs means there’s a good shot something will pass.
But how will the public view it? Even if it’s negotiated into something reasonable, a major backlash may loom that could enrage the public and accelerate flight from Illinois.
There’s a case to be made for a capital spending program. In the world of government finance, capital spending is seen differently than routine budget spending. Capital spending goes towards building or maintaining assets of long-term value like highways, airports and transit stations.
If done right, the public basically makes purchases that are financially sensible over the long run. Even strapped governments must make those investments to avoid permanent decline. User fees are regarded as best practice to pay for capital projects, and some of that is in Rebuild Illinois. Illinois’ capital infrastructure does need attention – most would agree that worthy projects are out there.
But that’s for finance wonks.
Joe and Mary Six-pack, however, will see something different. Here is the list of taxes on the table to pay for the program:
Gas tax hike – doubling Illinois’ motor fuel tax to 38 cents from 19 cents per gallon, effective July 1.
Vehicle registration fee hike – doubling the fee for newer vehicles.
New ridesharing tax – $1 per ride.
Expanding Chicago’s “Netflix tax” statewide – 7 percent tax on users of streaming services, cable and satellite customers.
Higher taxes on beer, wine and liquor – $120 million worth.
New statewide parking garage tax – 6 percent tax for daily parking and 9 percent for monthly and annual.
Doubling the real estate transfer tax – We’ve been calling this an Exit Tax because it makes it more expensive to sell your home and flee.
Higher registration fees for electric vehicles – increasing to $250 per year from $34 every other year.
And those are just to pay for the capital program. Also on the table, separately, are a plastic bag tax, tax on Medicaid providers, sports gambling tax, marijuana tax, video gambling tax hike, retailer tax hike, e-cigarette tax hike, higher cigarette taxes and the income tax hike on high earners.
Joe and Mary Six-pack will scream. The different nature of capital spending will mean nothing to them. They’ll see they got whacked immediately, contrary to Pritzker’s promise to soak the rich instead of them. The income tax increase on big earners (and a tiny cut for others) won’t come until 2021 and only if voters approve a constitutional amendment. They’re already tapped out.
Lawmakers ready to vote for a capital bill apparently are confident that new spending projects in their districts will keep the masses happy. That includes many Republicans, who are being induced by Democratic leadership to support the plan in exchange for projects in their districts.
That means pork. Boondoggles. The final selection of projects will be based heavily on politics instead of merit. Disgusted Illinoisans already know that’s routine with capital projects, but it will be worse now because of the horse trading that will be necessary. Anger will deepen as headlines ultimately come out on where the money will go.
A central viewpoint we hold here at Wirepoints isn’t a political matter or value judgement. It’s just an observation. It’s that people and employers are already fleeing. Cynicism and taxes are part of the reason why. Only drastic reforms, not tax increases, will reverse that. No turnaround scenario can work unless the tax base grows again, but we are going the wrong way. Further tax increases needed for capital projects will further enrage Joe and Mary Six-pack, driving more flight.
A capital bill, without reforms first, is a dangerous gamble, regardless of legitimate capital needs. It’s another example of the impossible situation we’re now in.
*Mark Glennon is founder of Wirepoints.
UPDATED to add the additional taxes beyond those for the capital proposal.