By: Mark Glennon*

The centerpiece of the “Illinois Comeback Agenda” proposed last week is a progressive income tax. That’s the key, Illinois progressives have long claimed. Tax the wealthy more heavily, give the rest a break and most of our fiscal problems will be solved, they say.

Sen. Guzzardi, left, Sen. Harmon, right, and other legislators at press conference on “Comeback Agenda.”

But simple arithmetic shows that claim to be utterly preposterous. Yes, our system should be more progressive, but claims made about benefits and feasibility of their particular proposal are insane.  Under the proposal proponents discussed, the top 6% of households would face a long term liability just for state pensions and related healthcare of $700,000 each plus an annual tax increase of at least  $36,000 to fill the current budget hole. And that’s not nearly all. They wouldn’t put up with it. They would leave.

In the press conference announcing the Comeback Agenda, Senators Don Harmon (D-Oak Park) and Will Guzzardi (D-Chicago) emphasized they want tax cuts for the “vast, overwhelming majority” of taxpayers. Specifically, Harmon referenced his earlier proposal that would raise taxes only for the top 6% of families; 94% would get a cut.

Here are the details on what that would mean for the top 6% (which is 275,507 households in Illinois):

Each household in the top 6% would be on the hook for long term for unfunded pension liabilities and related unfunded healthcare liabilities (which are all constitutionally guarantied) totaling about $180 billion. That’s $653,000 per household.  Plus, there’s the $12 billion of other unpaid vendor bills. That’s another $44,000 per household.

Then there’s the ongoing budget hole that has to be plugged which, realistically measured, is at least $10 billion (though it’s probably closer to $13 billion per year, as we showed earlier. That’s an additional $36,000 each year that would be pushed to the top 6%.

So far, we’re up to $700,000 to somehow be paid in the future, plus $36,000 per year for the rest of the budget, plus the cost of the tax cut for the 94% (the amount of which is unknown).

You might want to extend the same thinking to local debts and deficits. If only the top 6% should fairly be asked to cough up, what would that mean if you live in Chicago? Chicago alone has $35 billion just in unfunded pension liabilities. Cook County has another $15.5 billion. That alone comes to another $719,000 per household in the top 6%. Together with the state burden, households in Chicago’s top 6% would be looking at a future burden of $1.5 million.

You could keep going by adding tens of billions more for bonded debt and something to fill the deficits municipalities like Chicago and Cook County are running, but this is already beyond ridiculous.

Finally, all these number are based on the official reporting rules for pensions, which no reputable economist accepts. Using a more realistic “market basis,” which economists like, means unfunded pension debt in Illinois is almost three times what’s officially reported.

Nobody in our ace Springfield press corps asked Comeback Agenda supporters about any of this. Nor have they ever, that I’ve seen, asked that of any others who spin a progressive tax as a near cure-all. The debate in Illinois on its fiscal crisis remains fictional.

In fairness to supporters, they’re considering other taxes, too, so the entire burden would not be shifted to the top 6%. Those other taxes might include a sugary drinks tax, expansion of the income tax to retirees, a broader sales tax and higher corporate taxes. Those aren’t terribly large in the big picture, however. Some combination of them, that could reasonably be expected to pass into law, would probably yield no more than $2 -3 billion in new revenue, which is not enough to dent the numbers or change the impossibility of relying on the top 6% for the rest.

********************

Inequality is among the most challenging issues of our age. Every policy proposal should be put to the question of whether it’s progressive or regressive. I, for one, wouldn’t oppose a more progressive tax system if it were coupled with a long term plan to put Illinois on a sustainable fiscal path. I think most six-percenters would agree with that.

But to pretend that progressive taxes like those proposed in Illinois are the answer, with little else is, is quack demagoguery.

*Mark Glennon is founder of Wirepoints.

** The Comeback Agenda’s other elements don’t address our fiscal crisis or change these numbers. Specifically, the agenda also calls for limiting large campaign contributions, removing politics from drawing legislative boundaries, curbing tax breaks for corporations that move jobs out of state, raising the minimum wage, reversing cuts to child care programs put in place under Rauner, protecting children brought into this country from deportation regardless of immigration status, and ending the requirement of cash bond that can keep low-income people in custody.

 

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Tough Loive
3 years ago

The ONLY way the proposal to put most of the burden on the top 6% via increased income taxes would be if ALL (nice-to-live-in) States raised their taxes by the same amount and at the same time, because THEN those 6% would have no place (at least WITHIN America) to go to escape the tax increase, But such a nationwide tax increase won’t happen, and in States that’s have been more responsible (read than as having fewer in-the-Unions’-pocket Elected Officials) don’t need it. Greed HAS consequences. The Public Sector workers better have a “Plan B” for their retirement needs. They’re… Read more »

3 years ago

“But if the top 6% leave, then we will tax the next to 6%.”-Progressive logic.

Doug
3 years ago

The sad part of this story is to never underestimate the stupidity of Illinois voters to keep voting for the same corrupt Democrat politicians.

Tootsie
3 years ago
Reply to  Doug

While I fully agree one must consider the Republicans are no angels either, Edgar’s Pension Ramp and Thompson’s pensioners annual raise formula have had a lot to do with where we are at today. In short, none of them are any good

mrdenis
3 years ago
Reply to  Doug

Illinois needs new voters ,the last batch didn’t do so good .

Red Raspberry
3 years ago

If my private pension goes bankrupt (which the company has filed for) they will only pay out to currently retired or those vested at the rate of funding, which is around 80% now.

it is absurd to think that the current state pensions are in any way viable.

Steve-Oh
3 years ago
Reply to  Red Raspberry

Won’t the PBGC guarantee everyone’s pension up to $60,000/year pension payable at age 65 or reduced pension if payable earlier ?

Tough Loive
3 years ago
Reply to  Steve-Oh

Sounds correct (assuming a Straight Life annuity as the form of payment), but I recall that Plan increases in the last 5 years (and certain early retirement enhancements) may not be covered.

Rick
3 years ago
Reply to  Red Raspberry

Not to worry the Illinois constitution says retirements can’t be diminished or impaired even by market forces or greed or excessive vote buying. Oops that only applies to the government Union class, not the rest of us. No constitutional protections you, our constitution isn’t for everyone.

Jeanne M Ives
3 years ago

I argue our tax system is already progressive. The more my husband or I make, the more the state takes. A real flat tax would mean I only pay XX amount, plus maybe an inflation kicker. When we succeed financially it is a windfall for the state and yet there are no more services provided that I can see. The left like to redefine terms – I’ll do so in kind.

Tootsie
3 years ago
Reply to  Jeanne M Ives

Consider things like the Illinois Earned Income Tax credits and you will realize even more how the Illinois system is now progressive. However, quoting an above post ” never underestimate the stupidity of Illinois voters to keep voting for the same corrupt politicians.”

SRW
3 years ago

Personally, I don’t think Illinois is fixable. There are two aspects to this process: willingness and ability. We have the latter, but we have exactly none of the former. NONE. The reaction to the Rauner administration has all but proven that the inertia among Illinois residents and politicians is simply too great. The culture of myopia is just too dysfunctional. This will all end in real crisis one day, it’s just basic algenbra. I will be long gone by then, as will many others. Florida’s population will grow. The day the youngest kid of Ken Griffin goes off to college… Read more »

David
3 years ago
Reply to  WirePoints

So everyone in Illinois should just give up and die? Be realistic. Something will have to fix it, even if it is near collapse. Not everyone can move, and taxes can also go so high, and there has to be social services and other services too. In the end the pensions need to collapse I believe to truly have a fix. But, doomsday talk like everyone will just have to move is not realistic, and neither are tax increases that never end or no services. Not possible; not realistic. Pension collapse is realistic if nothing changes however.

SRW
3 years ago
Reply to  David

Well, yes, pension collapse is what I had essentially meant when I said “crisis” if it wasn’t obvious. I believe the only way it’s fixable in the meantime is via massive pension reform, but again, there is no willingness to do this and the state supreme court basically ruled pensions are inalienable rights…our fate got sealed then. Of course, pensions don’t fail like companies do, and there is no real way to have a “run on the bank” with them. Public pensions are toxic for many reasons, one of them being that they are flexible enough that they can be… Read more »

David
3 years ago
Reply to  SRW

My main point is who cares what the courts say? The pensions cannot be paid in full due to math and reality, and math and reality will easily defeat corrupt, biased courts. The pensions are much closer to collapse than people think. The pension debt is already not payable and silly looking number-wise, and once it gets to 300 billion or so, the number will look so silly that the state will have to cry uncle and admit the pensions are insolvent. Pension collapse is the fix because taxes, cuts, or the courts all will not defeat math and reality.… Read more »

Jeanne M Ives
3 years ago
Reply to  David

Market forces will correct this if we don’t.

Doug
3 years ago
Reply to  David

For real estate investors in Illinois, the main ? is do they raise taxes crazy like and invoke the Illinois Death Spiral, or will the Pensions/Health Care benefits take their just downsized cut?

SRW
3 years ago
Reply to  David

With respect to the courts, I’m confused what you’re saying they should do. There is nothing to do. The Illinois state supreme court ruling in 2015 literally made pension reform impossible.

I really don’t know what is going to happen when the state (and CPS) runs out of band-aids. It’s a little scary. Grotesque tax increases will certainly be part of it.

Public sector pensions should be illegal.

Doug
3 years ago
Reply to  WirePoints

There are not realistic tax increases or cuts to pay these debts, and so the pensions as is are doomed in reality.

David
3 years ago
Reply to  WirePoints

What I am saying as far as the courts is they can rule all they want the pensions must be paid, but there is NO realistic way to do so. The pensions are toast as is. The courts are saying a dead body must live.

Tough Loive
3 years ago
Reply to  SRW

Quoting ….”Public sector pensions should be illegal.”

AMEN !

Doug
3 years ago
Reply to  SRW

I just don’t see a Federal Bailout unless Democrats rule with an iron fist. To force Texans and Nebraskans and Floridians to pay up to cover Illinois corrupt pensions is a lot to ask for. This is unlike buying bonds or troubled assets like TARP and the auto industry, this is a pure debt assumption. This, if it happens, would coincide with the end of state rights, the electoral college would have to go away first.

3 years ago
Reply to  SRW

and the state supreme court basically ruled pensions are inalienable rights…our fate got sealed then.
Courts have a way of “making things happen” when the chips are down, there is no other choice and the only way out is the way before the Court- and when that day comes to the IL Supreme Court that will be the day that Court changes their tune.