The 75% Tax Increase

The January 10, 2011 issue of The New York Times paints a picture in headlines suitable for Goya - - "In Illinois, a Giant Deficit Leads to Talk of a Giant Tax Increase."  Giant in this case is a 75% increase in the state's income tax rate.  Illinois faces a deficit of at least $13 billion (Illinois has a budget deficit of $1,010.54 per capita.  In comparison, Texas has a deficit estimated at $24 billion for a population of 25,268,418 - - roughly $949.80 per capita.  The difference between "Giant" and something else appears to be around 6%.  For a trillion dollar federal deficit, the national per capita share is $3,333 - - this may actually be the upper boundary of the word "Giant.").  Illinois is currently 153 working days behind in paying its bills.  Only California has a lower bond rating than Illinois. 

A report by the University of Illinois - - "Titanic and Sinking: The Illinois Budget Disaster" highlights the following:

• No easy solutions - - we really need to print up 308 million t-shirts and hand them out to all U.S. citizens.
• The future is more unpleasant than the the present.  A do nothing alternative produces a $23.9 billion deficit in 2022 in 2010 dollars.
• No singular policy adjustment works.  Wait for the economy to improve - - far short to fill the gap.  Continue to accumulate obligations - - a 2030 backlog at $230 billion.  Borrow your way out - - the 2019 debt service costs would obligate every dollar received.  Increase the income tax rate - - doubling the rates would be required.  Increase the income tax base - - taxing Social Security benefits would fall short.  Increase the sales tax rate - - a 13.5% rate would be required.  Increase the sales tax base - - taxing services is not enough.  Spending freeze - - falls short.  Spending cuts - - not large enough without Medicaid and education cuts.

Titanic, sinking, near insolvent - - Illinois is facing a bleak future of multiple and massive policy changes.  Where massive might be a 50% tax rate increases and spending cuts that shut down entire core functions of state government.  Illinois might just be our national canary in the deficit mineshaft - - a world of no easy solutions where the policy goal becomes broad and shared sacrifice.

A world of 308 million t-shirts - - "No Easy Solutions."