Illinois' revenue problem

Once upon a time, editorialists (and reporters in editorials impersonating news stories) routinely used terms such as “generous”, “extravagant” or “exorbitant” to describe the benefits retired teachers receive, alleging the state’s largesse was the cause of the multi-billion dollar pension deficit, now believed to be around $43 billion for TRS alone, the largest of the state’s five underfunded pension systems.

These days, it’s more common for a pension attack to be prefaced by a statement by the attacker absolving the attacked of blame for the situation that is forcing him/her to attack.

Absolution might be good for the soul, but there is no evidence that, in this case, it’s making the absolved feel better. Annuitants, present and future, simply want the pensions they paid for and were promised.

Attempts to ram through unfair and unconstitutional legislation cutting benefits for working educators and retirees have not gone anywhere (yet) because the public isn’t on board.

But, regardless of the public’s mood, there eventually be will be some pension legislation. What it will contain is to be determined. IEA and the members of the We Are One Illinois coalition are fighting for a fair and constitutional solution. The unions have offered a framework as a starting point.

A lawsuit isn’t a sure bet

While an unconstitutional attack on benefits would certainly result in a lawsuit by IEA and other unions, history shows that you can’t count on the courts to rule in your favor, even if, in your view, the law is clear.

For example, years ago, IEA sued to force the state to fund education to the level prescribed by the Illinois Constitution. We lost when the Illinois Supreme Court refused to compel the state to do anything, based on “separation of powers.”

In addition, there have been at least 3 Illinois Supreme Court decisions since 1975 holding that there is no constitutionally protected right to have the State fund the state retirement systems at any particular level, until they are in danger of imminent bankruptcy. While the current situation is not sustainable in the long term, the systems are not on the verge of bankruptcy.

To keep the benefits safe, the money that was diverted from the systems to other state priorities needs to be replaced. The sooner that happens, the less the state will have to pay to service the massive pension debt.

The real problem has always been revenue

Not having enough of it caused past governors and legislatures to dip into the pension systems to avoid politically unpopular service cuts or tax increases.

Only more revenue can bring about a fair resolution of the pension mess.

One way to address revenue in the future is to replace the current and unfair “flat” state income tax with a “graduated income tax” system. Ralph Martire of the Center for Tax and Budget Accountability is a champion of the graduated (aka “progressive”) income tax. As Progress Illinois reports,

(Graduated income tax) would enable Illinois to collect even more revenue than the current flat tax, while at the same time lowering the tax rate for the 94 percent of Illinois residents who make less than $150,000.
Lowering the tax rate for this 94 percent would spur consumer spending as people of low and ordinary incomes are more likely to spend, than save, each additional dollar they get.
A progressive tax rate would put Illinois in the mainstream of American tax policy. The federal income tax is, of course, graduated and 34 of the 41 states with an income tax have a graduated tax.

The voters would have to approve a constitutional amendment to change the state’s tax rate. The next time that can happen is 2014.

But for voters to even have a say, the amendment would have to be placed on the state ballot.

Guess who will have a lot of say as to whether the amendment gets on the ballot?