CHICAGO – The Illinois governor candidates have been ridiculing each other’s budget plans, with Republican Bruce Rauner accusing Gov. Pat Quinn of leading a “tax-happy” state and the Chicago Democrat countering that Rauner’s proposal to cut income taxes will lead to painful cuts to schools, social services and public safety.
But a closer look at their claims shows both sides are playing a little fast and loose with the numbers, and neither has specified a plan that truly addresses Illinois’ monumental financial problems.
At the core of the debate is Illinois’ income tax, which Quinn and other Democrats raised by 67 percent in 2011. The personal income tax rate jumped from 3 percent to 5 percent, costing the typical Illinois taxpayer about $1,100 last year, while the corporate rate went from 4.8 percent to 7 percent.
The rates are set to drop on Jan. 1 to 3.75 percent for individuals and 5.25 percent for corporations.
Quinn wants to make the current rates permanent to avoid severe cuts to education and other areas. If he’s re-elected in November, Democrats are expected to vote on whether to keep the higher rates during the final days of the legislative session – when a “yes” vote could be easier for members no longer facing re-election.
Rauner says the tax hike stunted economic growth and contributed to Illinois’ higher-than-average unemployment.
“Pat Quinn is the big taxer,” Rauner said. “I am reducing taxes overall on the working families of the state.”
Under Rauner’s plan, the rate would drop to 3.75 percent in January then be scaled back over four years to 3 percent. He also wants to freeze property taxes, requiring voter approval of any increase, and impose a tax on some services.
Quinn says that could be devastating.
“What we heard (from Rauner) was a dishonest budget proposal that is completely blowing a hole of about $8.5 billion into our budget in Illinois,” he said. “We can’t have a flim-flam approach to the people of Illinois’ investment in things that count in life, like education, like public safety, like health care and like building roads that are safe and sound.”
Quinn overstates the revenue drop under Rauner’s plan – at least to start.
A report from the non-partisan Commission on Government Forecasting and Accountability says rolling back the rates as scheduled on Jan. 1, which Rauner supports, would reduce revenues by almost $5 billion for the budget year that begins in July 2015 — not $8.5 billion. Rauner says his sales tax plan would generate another roughly $600 million, bringing the total revenue loss to about $4.4 billion. This year’s entire general fund budget is $35.7 billion.
The larger drop in revenue would come later, when the rates would be lowered to pre-2011 levels.
Rauner says that by then, his policies will have helped Illinois’ economy grow so much that new revenue will be coming in from new jobs. He says that revenue – combined with eliminating waste and fraud in state government and other steps he has yet to detail – would close any budget hole. Rauner also says he’d do all that while also increasing funding for education.
Quinn says that math doesn’t add up. And Richard Dye, an economist at the University of Illinois’ Institute for Government and Public Affairs, agrees. He said it’s unrealistic to expect that jobs would be created at a pace fast enough to make up for such a sharp revenue loss.
Rauner’s own report shows that even growth equal to the country’s average would bring in about $1.1 billion in new revenue per year.
“Saying that growth will eventually solve the problem is really a strain to the arithmetic,” Dye said.
Quinn has called Rauner’s plan “dishonest” because he’s not outlining major cuts. Rauner says Quinn broke his promise that the 2011 income tax increase would be temporary and calls his economic record “atrocious.”
But Dye says neither candidate is being completely straight with voters about what it will take to eliminate Illinois’ structural deficit.
The state has about $4 billion in overdue bills – a backlog that has fallen from about $10 billion in 2010. It basically has no “rainy day fund,” or money put aside to help weather rough financial patches, despite a Commission on Government Forecasting and Accountability recommendation that Illinois have at least $2 billion in such a fund. That, along with a massive unfunded pension liability, has led major credit rating agencies to give Illinois the worst rating of any state.
That imbalance can’t be resolved simply by growth or raising taxes, Dye said. It will take the kind of harsh, unpopular cuts that few candidates want to discuss.
“The magnitude of the hole we have dug in Illinois over decades ... has gotten so great I believe the nature of what we think of as state government will have to change,” he said. “And no one will run for office on that.”