The Christmas season’s distractions and excesses have come and gone, but all of that holiday cheer has done nothing to muffle dire warnings about a state pension and debt crisis, and the nation’s perilous ascent toward Mt. Everest-sized debt.
Yes, the festive decorations are coming down but Santa Claus politicians remain at work year ‘round in Springfield, with 2013 presenting no exceptions. They love giving gifts to their compliant union leaders and their many reliable elves (a.k.a. unionized workers), and these folks enjoy receiving them, especially those cost-of-living-adjusted pensions wrapped in big bows.
This has had the predictable effect of damaging the state’s economy down to its core and decimating credit ratings, but many Illinoisans intend to keep living inside their hermetic globes as if none of the warnings have a thing to do with them. Let it snow.
Adults who believe in Santa Claus economics are predictable, too. They engage in sleight of hand rhetoric that lacks the seriousness required of a pending crisis like the one facing the public pension engine in Illinois.
State representatives Elaine Nekritz and Daniel Biss, both Democrats, donned their ideological red suits and white beards when they pulled a pension reform proposal out of their stocking in Springfield, and even a Republican, House minority leader Tom Cross, joined them as a co-sponsor. It is sprinkled with all kinds of tepid phase-ins and coded language (“cash balance plan”, using your cash to achieve the balance), which merely preserves “too much of the current broken pension system,” concludes vice president of policy Ted Dabrowski of the Illinois Policy Institute.
In the face of unfunded pension and retiree medical obligations projected to far surpass $200 billion, the Springfield supermajorities in the House and Senate actually thought they could nuance their way to solvency by shifting pension contributions to local school districts. That was in the original Nekritz-Biss bill but has since gone away. And now the lame-duck session will end without any pension reform bill attracting enough House votes to go anywhere.
The consequences of failing to impose real (painful) solutions on current and future pension-eligible workers apparently does not unnerve lawmakers because they are already plotting and scheming (with encouragement by Santa Pat Quinn) about amending the Illinois constitution to allow for “graduated” state income tax rates. This would only further delay a day of reckoning.
There are graduated rates in California, where the new upper tax rate on the highest earners is about to hit 13.3 percent. Santa Jerry Brown, the unrepentant Democrat governor, took a large sack of union dollars and persuaded California voters that this new rate is the gift that keeps on giving. We’ll see.
Back in Illinois, there is also a stirring in Democrat souls to figure out how to extract more tax dollars out of the state’s top natural resource: coal. Newly elected freshmen received an overview on carbon tax logic and were also informed that gaming is an under-taxed resource as well.
But just when it seems spirits could not be dampened any further by return of Taxmas season, dysfunctional Washington averted an 11th hour plunge off the so-called fiscal cliff by NOT cutting spending or finding legitimate ways to liberate trapped revenue.
Just as Illinois lawmakers would rather punish future generations by settling for inaction in the here-and-now on pension reform, federal lawmakers and President Barack Obama are signaling they are happy to punish wage earners and small business owners and, yes, even successful retirees – especially those who’ve been labeled “wealthy” – despite the certain devastation it will wreak on the overall economy. The compromise accepted by Republicans does nothing more than usher in a variety of stealthy tax hikes.
A pair of economists from Lynchburg (Va.) College in December released results of a numbers-crunching exercise that vividly quantifies the consequences of unabated taxation. Their exercise compares top marginal effective tax rates, state-by-state, under the so-called Bush tax structure (extended under Obama) with what rates would have been after a full-scale cliff dive.
By occupying the highest marginal bracket in Illinois (based on federal and state taxes; payroll taxes; Medicare taxes; and Obamacare taxes), your rate in 2012 was 40.6 percent. In 2013, thanks to the new tax bracket approved for couples earning north of $450,000, it jumps to 45.7 percent.
In the race to determine which state will self-destruct first, California actually moves considerably ahead of Illinois, as its top marginal rate rockets to 51.9 percent, the highest in the nation.
Some might derive consolation in Illinois’ 45.7 percent top rate, which places the state near the middle of the pack. But don’t forget the eternal drumbeat in Springfield to tee up a constitutional amendment that would liberate lawmakers from the state’s across-the-board 5% income tax. If in 2014 such an amendment passes, two or three points would soon be added to the upper end of a new “graduated” scale. Just like that, Illinois’ overall top marginal rate would jump into the high 40s, flirting with 50 percent.