A recent Sunday front-page article in the Chicago Tribune described row upon row of brand new state police squad cars parked in the state capital's fairgrounds. These vehicles were delivered last year but not put into service. The reason was that the state lacked the funds to purchase and install police lights, two-way radios, and computers. This latest expose highlights the state's ongoing fiscal crises.
The crisis is difficult to understand in view of the fact that:
1) Illinois ranks 5th nationally with a gross state product (GSP) in excess of $644 billion.
2) The International Monetary Fund ranked Illinois the 19th largest economy in the world, eclipsing Poland, Belgium, Sweden, and Saudi Arabia to mention just a few.
3) Illinois ranked only 43rd in state spending as a percentage of GSP among the states (obviously Illinois is not a spendthrift state).
The question is: "If Illinois is so rich, why can't it provide its citizens with such basic security services as state squad cars?" According to the Tribune article, the answer lies in the state's ongoing budget problems.
There are numerous solutions to the state's fiscal dilemma, but the state's legislators have as yet refused to embrace any of them. A combination of two or more of the following would greatly alleviate the crises:
1) End the retailers' concession
2) Opt out of the domestic production deduction
3) A financial transaction tax
4) A progressive income tax
5) Tax services
6) Tax annuities
7) End state corporate income tax giveaways
To cover their administrative costs, retailers are allowed to keep 1.75% of sales tax revenue collected from customers on behalf of the state. Given the advances in computer technology, collecting state sales taxes is no longer a burden to the retailer but rather an automated process. The state has lost more than $1 billion in sales taxes since the year 2000.
In 2004, the federal government created a tax break known as the "domestic production deduction." Because Illinois bases its tax code on the federal tax system, the deduction carried over to our state. However, states are not required to allow the tax break, so Illinois could have opted out, but it did not do so. In 2011, Illinois lost $103 million in sales tax revenue.
It has been estimated that a $1 financial transaction tax on each contract traded at the Chicago Mercantile Exchange (regardless of size) would generate $6 billion in revenue.
According to the Center for Tax and Budget Accountability, the current Illinois tax system places the greatest burden on low- and middle-income families. In fact Illinois has the third highest tax burden for low-income families of all 50 states. The current regressive flat tax is unfair because it does not impose a tax burden that corresponds with an ability to pay. However, a progressive state income tax automatically increases or decreases if a person receives a raise or loses his job. In addition, it would raise at least $2 billion and lower the state income taxes of 94% of Illinois taxpayers.
"In 2010 Illinois consumers spent twice as much on services as on goods. This shift in the fundamentals of the economy has changed the relationship between consumption and tax revenue. Changes in personal consumption have resulted in the Illinois sales tax covering a decreasing proportion of consumption expenditures." (Chicago Metropolitan Agency for Planning). Illinois taxes just 17 services, fewer than only three other states, and well below the national average of 56 (neighboring Iowa taxes 94 services).
Illinois is one of 13 states that exempts annuities (pensions) and Social Security benefits from taxation. This costs the state almost $1 billion annually, and is a tax break that Illinois can no longer afford.