There is a certain “conventional wisdom” gripping Illinois, shared by our Governor, most legislators, and the vast majority of news media voices, including certain columnists at this paper. According to this narrative, our budget and pension systems are unsustainable due to years of state “overspending” or “living beyond our means.” Now, due to our horribly underfunded public pension systems, our state government has “no choice” but to cut or eliminate pensions and benefits for retirees, dramatically cut state spending, or do some combination of both.
Neither the premise nor the conclusion are correct. Austerity budgets and attacks on public pensions are not necessary.
The fundamental cause of our state’s financial woes has nothing to do with exorbitant spending, exorbitant pensions or “big government.” Illinois has the smallest number of state employees per capita in the United States, at 4.1 per 1,000 residents. And while the occasional abusers of our public pension systems make headlines, the media rarely tells the other part of the story: Illinois ranks in the bottom one-fifth of all states for retirement benefits paid to its state workers.
The root cause of the problem is that we have one of the most regressive – and stupidest — tax systems in the United States. When all taxes in Illinois are measured for their combined impact on different income groups, we find that the bottom 20 percent of income earners are taxed at a rate of 13.8 percent, the next highest 20 percent are taxed at a rate of 12.1 percent, and so on up the scale, with the top 1 percent paying just 4.9 percent of their income in taxes. Illinois taxes poverty much more than wealth. That’s why we have a structural deficit – the system cannot possibly generate enough revenue to meet societal needs. Yet legislators have ignored the problem for decades, and instead borrowed from the pension systems to make ends meet.
That, in turn, is the fundamental cause of our current pension crisis — and the debt service on past borrowing is now eating into our operating budget. Yet most of our so-called political leaders still refuse to address the cause of the problem, proposing instead to place all of the burden on public employees, retirees, students, educators, and the rest of us who desire, or depend upon, a state government capable of serving its core functions.
Read the full article here.