Illinois still needs reality check

April 26, 2012


— After trying to tax Illinois to governmental solvency and economic dynamism, Pat Quinn, a Democrat who has been governor since 2009, now says “our rendezvous with reality has arrived.” Actually, Illinois is still reality-averse, so Americans may soon learn the importance of the freedom to fail in a system of competitive federalism.

Illinois was more heavily taxed than the five contiguous states (Indiana, Kentucky, Missouri, Iowa, Wisconsin) even before January 2011, when Quinn got a lame duck Legislature (its successor has fewer Democrats) to raise corporate taxes 30 percent (from 7.3 percent to 9.5 percent), giving Illinois one of the highest state corporate taxes, and the fourth highest combination of national and local corporate taxation in the industrialized world. Since 2009, Quinn has spent more than $500 million in corporate welfare to bribe companies not to flee the tax environment he has created.

Quinn raised personal income taxes 67 percent (from 3 percent to 5 percent), adding about $1,040 to the tax burden of a family of four earning $60,000. Illinois’ unemployment rate increased faster than any other state’s in 2011. Its pension system is the nation’s most underfunded, and the state has floated bond issues to finance pension contributions — borrowing money that someday must be repaid, to replace what should have been pension money that it spent on immediate gratifications.

Quinn’s recent flirtation with realism — a plan to raise the retirement age to 67 and cap pension cost-of-living adjustments — is less significant than the continuing unrealistic expectation that some Illinois’ pension investments will grow 8.5 percent annually. Although the state Constitution mandates balancing the budget, this is almost meaningless while the state sells bonds to pay for operating expenses (in just 10 years the state’s bonded debt has increased from $9.4 billion to $30 billion), underfunds pensions and other liabilities, and makes vendors wait (they are owed $5.6 billion).

The Illinois Policy Institute, a limited-government think tank, in a report cheekily titled “Another $54 Billion!?” argues that in addition to the $83 billion in pension underfunding the state acknowledges, there is $54 billion in unfunded retiree health liabilities over the next 30 years. Illinois, a stronghold of public employees unions, “is on pace to spend nearly $1 billion on retiree health care benefits in fiscal year 2013, more than double what it spent in 2003. Worse yet, these liabilities are growing more than twice as fast as tax revenues.”      

To prepare for Illinois’ probable plunge into insolvency, read “Freedom to Fail: The Keystone of American Federalism” by Paul E. Peterson and Daniel Nadler in the University of Chicago Law Review. They note that only 25 of the world’s 193 nations have federal systems, and in most of the 25, the freedom of the lower tiers of government is more circumscribed by the central government than American state governments are by the federal government. American states’ greater freedom — autonomy under America’s system of dual sovereignty — from the central government’s supervision requires that they be disciplined instead by the market for government bonds, and the real possibility of default.

Peterson, a professor of government at Harvard, and Nadler, a doctoral candidate also at Harvard, say collective bargaining rights for government employees pose “a dramatically new challenge to the viability” of American federalism. They cite studies demonstrating that investors’ perceptions of risk of default are correlated with the rate of unionization among government employees. Higher percentages of government employees who are unionized, and larger Democratic shares of state legislative seats, correlate with increases in state borrowing costs.

At least 12 percent of Americans change their residences each year, often moving to more hospitable economic environments. In a system of competitive federalism, Peterson and Nadler write, “If states and localities attempt in a serious way to tax the rich and give to the poor, the rich will depart while the poor will be attracted.” And government revenues and expenditures vary inversely.

From September through December 2008, the premium that investors demanded before they would buy California debt rather than U.S. treasuries jumped from 24 to 271 basis points (100 points equals 1 percent). The bond market, the only remaining reality check for state politicians, must be allowed to work.  

Constitutional jurisprudence affirms that states exercising substantial autonomous powers thereby assume concomitant risks. Federal loans or other bailouts of misgoverned states would remove bond market discipline, the only inhibition on the alliance between the Democratic portion of the political class and unionized public employees.

— George Will is a columnist for Washington Post Writers Group.    


cato_the_elder 6 years, 1 month ago

As stated by President Franklin D. Roosevelt in 1937:

"Meticulous attention should be paid to the special relationships and obligations of public servants to the public itself and to the government. All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service. It has its distinct and insurmountable limitations ... The very nature and purposes of Government make it impossible for ... officials ... to bind the employer ... The employer is the whole people, who speak by means of laws enacted by their representatives ...

"Particularly, I want to emphasize my conviction that militant tactics have no place in the functions of any organization of government employees. Upon employees in the federal service rests the obligation to serve the whole people ... This obligation is paramount ... A strike of public employees manifests nothing less than an intent ... to prevent or obstruct ... Government ... Such action, looking toward the paralysis of Government ... is unthinkable and intolerable."

America, wake up and smell the coffee.

just_another_bozo_on_this_bus 6 years, 1 month ago

Yes, we know, George, the rich say we'er broke, so the poor and middle class must pay.

Cait McKnelly 6 years, 1 month ago

Here's a statistic that will make you wake up and smell the coffee, Cato. US corporations, not international corporations, but US corporations, are sitting on a 1.24 trillion dollar cash hoard that they sre refusing to spend. I didn't stutter. I said 1.24 TRILLION dollar hoard. http://blogs.barrons.com/incomeinvesting/2012/03/14/u-s-companies-sitting-on-1-24-trillion-cash-hoard/ This means that money has been removed from the economy. On the other side of the equation is this fact; over 2,00 people per DAY are filing bankruptcy in this country. Simple economics says that there are only so many homes these people can buy, so many yachts and cars they can own and so many people they can hire to clean their toilets. So why are they hoarding that kind of money? The answer is simple; power. It's proof positive of corporatism (which is simply a euphemism for fascism) and it's choke hold in this country. It's also proof positive that the Libertarian "utopia" cannot exist and never will. I fully expect the "boys club" to "blame this on Obama". Yeah. Right. Bring it on.

Cait McKnelly 6 years, 1 month ago

That was supposed to be "2,000 people per day". Still on my first cup of coffee :P

jhawkinsf 6 years, 1 month ago

I'm not sure I understand your point. Are you saying that these companies have an obligation to spend money rather than save it for the future? Are individuals under an obligation to spend their money rather than save it. Am I under some obligation to spend my retirement fund now, stimulating the economy, preventing others from going bankrupt? Must I now spend my child's (or in my case grandchild's) college fund? What inherent evil exists when companies save, as your comment implies? Or am I missing something?

Cait McKnelly 6 years, 1 month ago

Yeah, you're missing something. No one is saying that individual saving is a "bad thing". None of this money is financial institution related (if you had read the Barron's article). Nor is it "investment income". It's money being held by corporations and simply sitting there. Big difference.

jhawkinsf 6 years, 1 month ago

Well, maybe I am missing something. But it is "their" money. And as such, they can spend it as they see fit, invest it, or put it under their mattress if that's their choice. Am I correct? I'm no fan of telling someone else how to spend their money. I would resent someone telling me I must spend my money. As I'm equally certain you would not want me telling you what to do with your money. The bottom line is that as long as the company accumulated their money in a legal manner, and there has been no assertion otherwise, then it's "their" money to do with as they please.

Mike Ford 6 years, 1 month ago

some partisans clown taxes while countries like Denmark, Norway, and Sweden have a life enjoyment index that makes the US seem like the painful self wounding psyche of the 18th and 19th century. The kings must always prosper while the fiefdoms hurt. Makes one wonder why most of the former fiefdom citizens immigrated here to act just as selfish as the monarchies their ancestors left in Europe. History and logic are not fortes of the average citizens of this country. If they ever woke up the GOP and Archie Bunkers would be in trouble. I have a classmate from here in NE Kansas whose lived in Norway since 1994. Rides trains to her gigs, plays 200 gigs a year and makes a living and just had paid childbirth and maternity leave. Now come back to the dark ages of the US and GOP economic darwinism. Naw.....I don't think so.....besides she and I survived Reaganomics as teens anyway.

streetman 6 years, 1 month ago

Those always touting the quality of life in the Scandinavian countries vs. US conveniently forget soome things. Those countries spend next to nothing on defense, which frees-up considerable resources for entitlement-type offerings. They can get away with this because the US has and will cover their butts -- you might recall the US playing the major role in keeping the Nazis and Soviets in check. These countries -- among the most "ethnically pure" (and basically "closed") on the planet -- do not have to deal with diversity and immigration issues that cost a fortune. If these countries are really relatively "better," why do they not experience the major immigration (legal and otherwise) that the US has?

just_another_bozo_on_this_bus 6 years, 1 month ago

"Those countries spend next to nothing on defense,"

No, what they spend on the military is primarily for defense, not imperial adventures, and apparently it's enough as far as they're concerned. Kinda interesting that you'd rather flush money down the military-industrial toilet that have a much better society that's well within our ability to afford.

" If these countries are really relatively "better," why do they not experience the major immigration"

Actually, there's been a good deal of immigration to those countries. The recent terrorist attack by the neo-nazi was motivated to a large extent by the existence of immigrant populations.

jayhawklawrence 6 years, 1 month ago

I think when you stencil the label "conservative" or "liberal" on your forehead and then you set out on a career of arguing why that makes sense it makes it very difficult to ever understand "common sense". Common sense is the ability to find simple solutions to problems and to make improvements that oftentimes cause people to stop and say, "Gee, that really makes sense".

The problem I see with the argument presented by George Will is that he leaves a lot of variables out of the equation. Hard right conservative politicians have been promoting the idea that any taxes are bad and any social programs are bad. They do not allow for a reasonable compromise or "common sense" solutions. Most of what we read and hear is so tightly packaged in political rhetoric it is impossible to squeeze anything worthwhile out of it but we are asked to pick sides.

That just isn't fair.

Biased political commentators and talk show hosts push citizens to take sides even though both sides are playing a game that benefits an elite few at the expense of average Americans and makes our country far less competive in a world where giants such as China are eating our lunch boxes.

While Will makes a lot of good points he doesn't take into consideration all the things that create a "poor business environment". It is very important to realize the impact of social and psychological factors and how they effect an economy.

Politicians, talk show hosts and politically biased news columnists who only consider a narrow agenda or "political philosophy" bear responsibility for a political environment which is unacceptable to nearly 9 out of every 10 Americans. Certainly, in the past 3 years, the Republican Party has absolutely promoted and exploited a "poor business environment".

We need to question the political parties themselves and the manner in which the American people are being influenced on a variety of issues and we need to question who is controlling our legislators after they are elected to congress.

Mike Ford 6 years, 1 month ago

really laissez faire denier liberty????? I talked to one of my former Baker University history professors who got on here and laughed at your feeble attempts to defend those GOP isolationist crooks of the 1920's. Your putdowns are pointless... look in the mirror....

Flap Doodle 6 years, 1 month ago

How many former Democratic governors of IL are currently in prison on corruption charges?

Mike Ford 6 years ago

I've seen so many of you play this "I know what you are but what am I" nonsense... it should and is a main part of the GOP platform. Nothing really to say but bait arguements.....again what is your pointless point.....you don't believe the Walking Purchase of 1737 ever happened and the Quakers never stole land from the Delaware or Munsee people.....you are like the Brownback people who believe that men rode dinosaurs.......you have no validity.....call me what you want... you don't matter....better yet ask mom to bring some dinner down to the libertyone cave in your folk's basement.

Armstrong 6 years ago

Imagine that a blue state needing a reality check.

Terry Sexton 6 years ago

I saw the Illinois gov on the tube earlier this week. He looks like a nice man. Clean & sober. No Koch habit.

Armstrong 6 years ago

or money, or jobs, or future,, or...

Flap Doodle 6 years ago

The one in prison or the one who hasn't been convicted yet?

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