WASHINGTON, D.C. – With Illinois making last-ditch efforts to hold off an imminent statewide bankruptcy, we may be witnessing the beginning of the end for Democratic Party socialist rule at the state and local level, as well as collapse of the FDR-LBJ “Great Society” social welfare state.
Late Thursday night, the Illinois Democrat-controlled House overrode by a 71-42 vote Republican Governor Bruce Rauner’s veto to pass a massive tax hike that includes a $5 billion income tax increase for the residents of the state.
Rauner had begged the General Assembly to sustain his vetoes of a $36 billion spending plan financed with a $5 billion income tax increase, arguing the 32 percent income tax increase amounted to “a 2-by-4 smacked across the foreheads of the people of Illinois.”
During the era of the last Illinois tax hike, from 2011 through 2014, the three major credit rating agencies have downgraded Illinois’ credit rating five times, with Moody’s announcing on Wednesday that simply passing a budget would not be enough to avoid Moody’s Investors Service from downgrading Illinois’ credit rating to “junk” status.
Illinois currently faces a $203 billion unfunded liability for state and local pensions that include fire and police pensions, plus over $6 billion in unpaid state debts.
Tax increases in the past have not worked, as evidenced by the $31.6 billion increase in tax revenue to Illinois from 2011-2014 resulting from the 2011 income tax increase resulted not in a reduction of Illinois’ pension debt, but in a $25 billion increase in the state’s unfunded pension liability.
With the fiscal crisis in Illinois, Democrats may have reached the end of their ability to tax and spend – a policy Democrats have advocated nationally since President Franklin D. Roosevelt initiated the “Social Welfare State” during the Depression, brought to a new level with President Lyndon Johnson’s proclamation of the “Great Society” in 1964.
Illinois is already the most taxed state in the nation, with state and local governments effectively taxing median households at 14.76 percent through a combination of income and sales, plus the second-worse property taxes in the nation, such that people in homes with U.S. median home value pay over $4,000 a year in property taxes.
The result is the median Illinois household pays $8,162 in annual state and local taxes, including sales taxes, property taxes, and income taxes – estimated to be the highest in the nation, forcing profitable business and high net-worth taxpayers to flee in droves.
Polling by the Paul Simon Public Policy Institute found that 47 percent of registered voters in Illinois would like to leave the state, while 20 percent report they are likely to leave in the next year.
The Paul Simon Institute polling also reflects United States Census Bureau data, that confirm the severity and worsening of Illinois’ out-migration problem, in which Illinois has lost 700,000 people on net to other states over the last decade.
The truth is that Illinois remains buried under a massive amount of state debt that tax increases have reached the end of being able to solve.
From 2011-2014, while the income tax increase voted by the State legislature resulted in a $31.6 billion increase in tax revenues, Illinois $7.9 billion in unpaid debts dropped by only $1.3 billion.
In other words, it took $31.6 billion of new tax revenue to reduce the backlog of Illinois state bills by merely $1.3 billion, while unfunded pension liabilities in the state grew an additional $25 billion.
With tax increases resulting in more high net-worth taxpayers and profitable businesses leaving the state, rating agencies like Moody’s are doubtful the tax increase passed Thursday will do much of anything to improve the state’s rapidly deteriorating fiscal situation.
Moody’s, in announcing Illinois’ credit rating is under review for a downgrade to “junk” status, noted the tax increase passed on Thursday was passed almost exclusively with Democratic Party votes in the legislature, while Democrats in passing the tax increase did nothing to reduce Illinois state spending.
Moody’s has also cautioned that Illinois is just the first state to face bankruptcy, as unfunded liabilities for U.S. state public pensions across the country are expected to balloon by 40 percent to $1.75 trillion through fiscal 2017.