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.
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.