By James Wigderson
Special Guest Perspective for the MacIver Institute
In the 2010 November elections, the two neighboring states of Illinois and Wisconsin chose completely different paths to fixing their fiscal problems. In Illinois, the home state of President Barack Obama, the Democratic governor and the Democratic legislature chose to raise taxes and increase spending. In Wisconsin, the home state of Congressman Paul Ryan, the Republican governor and the Republican legislature decided to make structural changes to control spending without raising taxes.
It was the perfect opportunity to see what really works.
They say that the first step in ending self-destructive behavior is admitting that you have a problem. In Illinois, they are finally admitting that they have a problem. The state’s finances are still a mess in desperate need of help. But like an obese person stepping on the scale and deciding more donuts and bacon fat will fix the problem, Governor Pat Quinn is putting Illinois on a diet of more taxes and spending.
Quinn unveiled his budget plan to his state’s legislature last week saying the “rendezvous with reality has arrived.” The state may have finally rendezvoused with reality, but the tax and spend mentality driving Illinois to the brink continues almost oblivious to the damage it is wreaking.
The Illinois Policy Institute says, “From 2000 to 2010, state per capita spending grew by 71 percent, more than twice Illinois’ growth in GDP per capita.” Despite this dramatic increase in spending, Quinn plans to increase spending by $20 million more on education, $50 million more on college scholarships, and $700 million more on government employee pensions.
But what really stands out about Quinn’s budget plan is how it continues last year’s dramatic “temporary” 67% income tax increase, $6.8 billion per year. Local property taxes could go up dramatically, too, if Quinn has his way in putting the burden of pension benefits onto the local school districts. Quinn is also asking the legislature to consider “closing corporate loopholes” on companies based in Illinois but earn income elsewhere, raising corporate taxes by $75 million. That’s in addition to the 45% increase in the corporate tax rate last year.
It’s clear that the Illinois approach is not working. Despite the increased taxes, Illinois is a state that cannot meet its obligations. The state still has $8 billion in unpaid bills, causing some of the state’s vendors to go out of business. Quinn’s budget proposal would only pay $163 million towards that mound of unpaid state obligations. The state’s pension fund will still be underfunded by $80 billion and state retiree healthcare will be underfunded by $40 billion.
Meanwhile, Illinois is getting ready to cut core services like Medicaid by $2.7 billion, and that’s only if the legislature can figure out how to do it.
Quinn’s budget calls for shutting down prisons, including the state’s only maximum security prison for women, and mental hospitals. This will mean the layoff of 1,110 state employees. Suddenly being a state employee in Wisconsin doesn’t look so bad.
Actually, Wisconsin as a whole looks better than its neighbor to the south. Remember, Wisconsin actually paid off the debt owed to Minnesota under the old tax reciprocity agreement and is paying off the $200 million debt to the Injured Patients and Families Compensation Fund. So much for unpaid obligations.
When Wisconsin Governor Scott Walker took office, he was facing a $3.6 billion structural deficit. That’s been eliminated and the budget was balanced this year without raising taxes.
Despite fears to the contrary, Walker’s Act 10 reforms allowed the school tax levy to actually go down this year. By limiting collective bargaining for public employees to wages, school districts across the state were able to make changes to teacher benefits to lower costs.
Wisconsin avoided the massive layoffs and service cuts that its neighbor to the south is enduring. Wisconsin did it without the increases in taxes and spending that took place in Illinois. One state is on the right track to long-term fiscal health, while the other state is on a Greek island cruise. So which state is going through recall elections?