The current projection for the 2021 budget deficit is $3.3 billion. However, Pritzker’s faulty revenue assumptions are likely underestimating the size of the deficit. If the governor used more realistic assumptions about the growth in Illinois’ income and future tax collections, the structural deficit for 2021 would grow by $940 million, bringing the deficit to $4.2 billion by the time a graduated income tax hike could take place.
By using outlandish projections for income growth, the administration alleges that a graduated income tax plan is capable of bringing in an additional $3.4 billion while still providing tax relief to 97 percent of Illinoisans. Unfortunately, because the governor’s baseline is far off, his plan will not deliver on his promise of closing the structural deficit. When his plan ultimately fails to bring in enough revenue, he will have to raise taxes on middle-class Illinoisans.
Higher than the state’s own projections
Pritzker’s proposed fiscal year 2020 budget was already criticized by S&P Global Ratings for relying on overly optimistic revenue projections. His tax plan is no different.
In fact, Pritzker’s baseline tax collection estimates are $1.9 billion to $2.5 billion higher than the Governor’s Office of Management and Budget projected in November 2018. One reason is that GOMB included a three-quarter recession in its estimates, based on economic projections from analyst group IHS Markit.
Pritzker still hiding key details
The administration still has not provided the number of tax filers they assume are going to be in each tax bracket in 2021, making it impossible to fully analyze the governor’s plan.
Because Pritzker does not disclose his estimates for the number of tax filers, it is not clear whether his plan takes into account population loss, which is likely to depress long-run economic growth. Illinois is the only state in the nation amidst five consecutive years of worsening population decline.
The Illinois Policy Institute has filed a Freedom of Information Act request seeking these details, as well as the basis for changing the growth forecast from GOMB’s November 2018 projection.
A different path forward
Pritzker’s goals – healthy state finances, a strong economy and a tax cut for the middle class – cannot be achieved by the means he’s proposed.
Instead, Pritzker should look to structurally reform Illinois’ spending to address the largest cost drivers of the state’s fiscal problems: government worker health care costs and pension benefits. The Illinois Policy Institute shows how commonsense, bipartisan reforms can be achieved in its recently released “Budget Solutions 2020: A 5-year plan to balance Illinois’ budget, pay off debt and cut taxes.”
Lawmakers have two options ahead of them: They can continue to rack up debt and pursue tax hikes that will further damage the state’s economy, or they can break with past practices and pursue responsible budgeting that protects both taxpayers and core government services. |