A call for a progressive state income tax was met with demand for reforming Illinois’ finances as proponents of each met in a Naperville Chamber of Commerce Legislative lunch debate.
Ralph Martire, executive director of the Center for Tax and Budget Accountability, argued for the graduated tax; Ted Dabrowski, of the Illinois Policy Institute, countered with calling for reforming state finances, particularly the state’s five public pension systems.
The current state income tax is a 5 percent flat tax, but is scheduled to revert to the previous 3.75 percent in January 2015.
The Illinois Constitution mandates a flat tax, and would require amending to allow for a progressive tax.
“We all know Illinois is in deep trouble,” Dabrowski said, referring to the state’s unfunded pension liabilities, estimated to be anywhere from $86 billion to $110 billion, depending on which expert is doing the estimating.
The state is currently $5.2 billion behind in paying its bills, Dabrowski said.
“We don’t have a revenue problem, we have a spending problem,” he said.
Dabrowski went on to say that 85 percent of Illinois residents would see a tax hike under the progressive tax and noted it still wouldn’t solve the problem of unfunded pension liabilities.
Martire argued that the great majority of wealth created in the last 32 years went to the wealthiest 10 percent of Americans, and that while taxing the rich more won’t change their consumption habits, it would change the spending habits of lower and moderate income workers, which would be a drag on the state’s economy.
“Our tax system doesn’t work in a modern economy,” he said.
Dabrowski said the pension shortfall was a result of overly generous benefits for state employees, while Martire attributed it to 1995 legislation that allowed legislators to continue borrowing against obligations to pension contributions to pay for public services.
“The state made a conscious policy decision to not put into the pension system what it owed,” he said, stressing that the payments were structured to become bigger over time.
Dabrowski called for the public sector to follow the lead of private companies and become more efficient, saying, “We need to change how we deliver education and how we deliver Medicaid.” Martire countered that the public sector’s priority is to provide public service and that the state’s revenue didn’t support its services and debt.