Tax Facts: How to address Illinois’ budget deficit WITHOUT cutting spending to education and other basic human services

What is the state of the state’s budget? HARD costs (e.g. pension payments, debt owed to bond holders) Unpaid bills which MUST be paid $35.63B $24.47B $16.17B 0 B -8.35B. General Fund Budget K-16 Education Healthcare Human Services Public Safety Other CTBAonline.org: Analysis of FY2014 Illinois General Fund Budget

Was the Temporary Tax Increase Worth It? CTBAonline.org: Analysis of FY2014 Illinois General Fund Budget

What caused the state’s budget deficit? 1. Flawed Tax Policy * overtaxing our main consumers – the poor and middle class * while refusing to raise taxes on the higher income earners 2. Irresponsible Fiscal practices * misusing funds intended to pay pensions * cutting spending in basic human services 3. The “Great Recession” of ‘08-’09

What’s flawed about the current tax policy in Illinois? Families earning less than $57,000 pay 10.9% in taxes* in Illinois Families earning $445,000 or more only pay 4.9% in taxes in Illinois *Taxes: Sales and Excise, property, and income taxes after federal deduction offset Institute on Taxation and Economic Policy, 2013 Help save our Middle Class

How would it help business if people who earn less paid less for taxes? Middle income earners spend most or all of their income for food, clothing, etc., giving it back to the economy. Upper income earners save much of their income

Example Remember those checks we got from the 2008 stimulus (aka the Bush rebate)? Parents - professionalsTheir 25-year-old son who put it in the bank used it for much- needed car repairs

Which taxation focus is more responsive to the economy? Does it make sense to rely on taxing salaries of middle income families, which have been flat or declining in real terms over time…

OR Does it make more sense to focus on the sector where the economy is growing? Top income earners have collectively received all real income growth in the nation since 1973

Even with the temporary tax hike, Illinois taxes personal income at a low level

Increasing taxes does not kill Jobs The 2 states with the lowest taxes in the Mid West (IL and MO) also had the lowest GDP growth during 2010 (1 st year of recovery post recession)* In 2011, Young and Varner –Ties to family, friends and career outweighed a higher personal income tax rate –Following a 2004 tax increase in New Jersey, Revenue gain from tax increase: $3.77B Loss of revenue from exit of people earning over $500,000: $16.4 M:.004 of the gain * CTBA: Illinois FY2013 General Fund Budget Analysis

Having a structural deficit means NOT investing in Infrastructure Education But all of these attract and keep businesses! Transit

Fiscal Irresponsibility – underfunding human services Adjusting for inflation, our state is already spending over 28% LESS on Human services today than in %. 9% -30.0% -25.0% -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% State Spending Increase (Nominal Dollars) State Spending increase after adjusting for the ECI and Population Grown State spending increase in nominal dollars Changes in costs of Core Services 15.5% CTBAonline.org: Analysis of FY2014 Illinois General Fund Budget

Most of the money spent on core services pays for salaries for labor-intensive jobs Spending cuts have KILLED JOBS in Illinois Many jobs in health and safety, education, and other human services have been lost over the past 12 years.

Why are these jobs so labor intensive? The Human Services provide 1 on 1 help addressing Mental Health Services Developmental Disabilities Substance Abuse and Alcoholism Services Rehabilitative Services helping Developmentally Disabled residents live as independently as possible Childcare assistance for low-income working mothers Family and Community Services- Includes SNAP, WIC, and cash assistance © 2012, Center for Tax and Budget Accountability

Effect of Job Cuts on Dept. of Human Services Some workers now have caseloads of more than 1000 people! caseloads.html

Why is it irresponsible to cut spending in core human services? For every $1 spent on core public services The economy gets back $1.36! -Zandi* Because investing in public services creates jobs for people who spend their income on goods & services. *Chief Economist for Moody’s

Fiscal Irresponsibility Example: Under funding education We fund education at $2500 LESS than adequate to give a basic education (2/3rds of students without special needs succeed)* * According to EFAB: Education Funding Advisory Board

Since 2009, Cuts in Education Funding have caused… Loss of 6400 full time teacher and aid positions* –Crowded classrooms * Illinois State Board of Education, March, 2013

Spending cuts since 2009: Transportation cuts: Children in some districts can spend up to 2 hours on a bus getting to and from school. * Illinois State Board of Education, March, 2013

Spending cuts since ,000 preschoolers deprived of early childhood education* * Illinois State Board of Education, March, 2013

Funding of Education varies by state Average state fundingIn Illinois Illinois already ranks 50 th among the states in the amount of educational funding provided by the state.

Why is it a problem when local districts pay most of the cost for education? Property taxes account for 92.4 percent of inequality in local revenue between low- and high- poverty districts* The wealthiest districts are able to raise on average almost $5,000 more per pupil than the highest- poverty districts. * Baker & Corcoran, 2012, Center for American Progress

© 2012, Center for Tax and Budget Accountability How poorly-funded education is a harmful cycle Between 1980 & 2006, people with the least amount of education experienced the greatest wage loss Citizens with the greatest wage loss live in poorer neighborhoods & their children go to poorly- funded schools. Inadequate education is related to poor lifestyle choices- smoking, teen pregnancy, dropping out, etc.

Effects of underfunding schools: Cost to Society of Dropouts If ½ of high school dropouts in their 20’s finished school, the government would reap $45 billion in * extra tax revenues & * reduced costs of public health, crime and justice welfare payments Levin, H., Belfield, C., Muennig, P., & Rouse, C. (January, 2007).

There is no logic for under funding human services We live in one of the Wealthiest States! Illinois’ Annual Economy of $650 Billion exceeds the economies of Belgium & Sweden! * * The Economist Online

The People Agree… Illinois has a REVENUE problem – Not a spending problem According to a 66% of Illinois voters statewide poll endorse increasing income conducted by the taxes on higher income. Paul Simon Public earners Policy Institute

We need a constitutional amendment for a Fairer Income Tax According to Adam Smith, “the father of modern capitalism” "The subjects of every state ought to contribute toward the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.”

This is what a fairer tax looks like in Iowa Iowa: 9 Rates (0.36% to 8.98%) If we had Iowa’s rates we would have $6.8 Billion more in revenue and 56% of Illinoisans would pay lower taxes

How is a graduated rate calculated? Hypothetical example* $50,000 $40,000 $30,000 $20,000 $10,000 $ 0 Taxable income 1.1% 2.2% 4.4% 6.6% 8.8% Average Tax: 4.6% * For someone with a taxable income of $50,000

Please help us! Tell your legislators that we need a vote on a constitutional amendment for a Fairer Income Tax on the November, 2014 Ballot

Change Requires Constitutional Amendment Placed on Ballot by Legislature HJRCA 33 and SJRCA 40: lower rates apply to lower income levels & higher rates apply to higher income levels.

Timeline for Approving a Constitutional Amendment May 4, 2014: 60% of both houses of the General Assembly pass a bill calling for a referendum to be placed on the Nov., 2014 general election (71 votes in the House and 36 votes in the Senate) Nov. 4, 2014: 60% of those voting on the referendum (or 50% of those voting in the election) approve the referendum Following that, legislation setting the rates then needs to be passed by GA.

For More Information: League of Women Voters of Illinois Center for Tax and Budget Accountability