Tax increase was painful but quite necessary

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Don Harmon

Last week, the General Assembly acted decisively to stabilize Illinois government, save hundreds of thousands of jobs, curb reckless spending and pay our past-due bills. Our most publicized action was the approval of Gov. Quinn's controversial and unpopular proposal to raise taxes. The governor's proposal, however, is part of a much larger effort to fundamentally reform the way Illinois raises, spends and manages taxpayer dollars. In that context, the governor's proposal is responsible government. Let me explain.

First, we have cut government spending. We cut spending by $4.4 billion in the past two fiscal years, a reduction well in excess of 10 percent. More recently, we enacted a sweeping overhaul of pension benefits — a bipartisan reform effort far more dramatic than attempted in any other state in the nation. As a result, we will cut contributions to the pension systems by $75 billion and reduce our unfunded pension liability by $250 billion over the coming decades. Similarly, we enacted a comprehensive overhaul of our Medicaid program. This bipartisan reform effort will cut $200 million this next fiscal year, and billions more in the years to come.

Second, we have fundamentally changed the way we spend taxpayer money. We have adopted a cutting-edge fiscal management tool referred to as "budgeting for outcomes" or "performance-based budgeting." We are holding government accountable for its performance. For instance, we are suspending all state grants to review their effectiveness, and will renew only those that perform to expectations. Similarly, we are re-bidding all significant state contracts to ensure that we get the best price and the best performance for taxpayers. Insider deals that the state shouldn't have entered in the first place will be scrutinized, questioned and ultimately ended. Finally, we are changing the way labor contracts are negotiated, so that one governor can't tie the hands of the next administration.

Third, we are finally looking to the long-term and enacting durable solutions. We will balance the budget not only this fiscal year and next, but also for two fiscal years thereafter. For decades state government has gone from one year to the next without a responsible long-term plan. Not anymore. Now we're building the fiscal infrastructure to sustain us for the foreseeable future.

Fourth, we will pay our bills on time. We plan to pay all of our backlogged bills in the first months of 2011, and we will stay current on our bills going forward.

Fifth, we are preventing the future growth of government. We are adopting a moratorium on new programs, and our long-term budget proposal imposes hard limits on future government spending. These limits have real teeth — any effort to increase government spending beyond these hard limits will result in an automatic repeal of the tax increase. Only an emergency situation recognized by a bipartisan supermajority would be excepted. This will necessitate even deeper cuts in future spending.

Finally, what are we asking of taxpayers? A temporary increase in the individual income tax rate of 2 percentage points. This allows us to pay our bills on time and positions us to work Illinois out of its chronic structural deficit — a decades-old problem created by bipartisan neglect. If we succeed in putting our fiscal house in order and we control spending, one-half of 1 percent of the tax increase will become permanent, to fund core government services. Illinois currently has the lowest flat income tax rate in the nation. Even after the permanent increase, we will be the second lowest.

It has not been easy or pleasant to enact this plan, but we had no choice. Don't believe for a moment that Illinois Republicans offered a viable alternative. The only alternative on the table — doing nothing — would have been devastating to Illinois. Had we not acted, we expected 250,000 people to lose their jobs, sending our unemployment rate up to 15 percent. We expected to see massive cuts to education, forcing increases in property taxes and layoffs of thousands of teachers. We expected to see a complete unraveling of the social safety net, with vulnerable citizens losing access to health care, mental health services, domestic violence shelters and other critical government programs. We expected the state to default on its obligations.

Instead, these proposed increases, combined with similar increases in the corporate income tax rate and significant additional cuts in spending, will finally allow Illinois to return to financial stability, to invest in jobs and education and infrastructure, to attract businesses to Illinois, and to begin to end this painful chapter in our state's history.

Don Harmon is an Illinois state senator, 39th District, assistant Senate majority leader and Democratic committeeman who lives in Oak Park.

Reader Comments

7 Comments - Add Your Comment

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OP Resident  

Posted: January 21st, 2011 8:33 PM

Of course, we don't hear a peep from Don Harmon on corruption in our state government and how much it costs taxpayers. He's now a Springfield insider. A major player. One of the boys. Good for him. Bad for us!

john murtagh from oak park  

Posted: January 21st, 2011 4:44 PM

I actually was at the site ready to slash and burn Harmon. Then I read the article again and realized that the strategy (really a debt reduction step) could be worthwhile if it brings the unions --- and corporations to the table to discuss the major government changes being offered. Cuts would polarize the issue with the union and create a backlash that would hinder change. So I decided to remain cynical, take a soft position on the cut issue, and see the results before being going bonkers.

Albert  

Posted: January 21st, 2011 2:47 PM

@John - why not Cuts? I agree with your suggestion about targets and measures. How about Quarterly? Why is it that the NON Gov. worker and taxpayer has to pay the brunt - while the State workers are left protected. State employees are paid VERY well, have protected Pensions and the unemployment rate is crazy low. Why, Because the Legislators are controlled by the Union Lobby. Cuts need to be made - back to 2004 levels

john murtagh from oak park  

Posted: January 20th, 2011 11:55 PM

I will not jump on the bandwagon saying that cuts should have been made simultaneously with the tax increase, but my position is soft. I suggest that Senator Harmon give us, on this site, a quarterly report on the government reform progress in dollars and cents. If targets are not met, then we can discuss whether not making cuts now was a good and decisive decision. We all need state accountability of historic proportions.

C.L  

Posted: January 19th, 2011 8:52 PM

John D has nailed it. Harmon is being disingenuous, as there has been NO deep cuts that need to be made when there is a crisis. The state has TOO many jobs, Too many politicians and too many bloated programs. The state needs to cut across the Board, 20% and match cuts that Business has made.

EliminateCIT from Denver  

Posted: January 19th, 2011 2:05 PM

It is basic math that best illiustrates why Illinois will lose jobs. Bottom line, an employer in Illinois with same state customers will need to raise all of their prices by 3.8% or else cut wages to workers or returns to owners. By the same measure, if i move to Texas and sell only to that State's customers, i can charge them 10.8% less than any Illinois customer. So why stay in Illinois? http://www.eliminatecorporateincometax.com/2011/01/why-illinois-cit-increase-will-raise.html

Jon Donohue  

Posted: January 19th, 2011 9:33 AM

I agree with Senator Harmon that a tax increase was necessary. What I don't understand is why he voted for one of the largest regressive tax increases. The Illinois tax system taxes everyone the same amount regardless if you are the barista at Starbucks or the CEO of a multibillion dollar company. Most reputable economists will agree that a regressive tax system disproportionately benefits the wealthy. Raise taxes, but not on the backs of the poor and middle class as you just did.

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