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Much is swirling under the Statehouse dome this week.
Although the Gross Receipts Tax remains central to the
General Assembly’s current maneuverings it should be obvious
the GRT will not be approved by the General Assembly. I think
that by the end of this week most legislators will want to
move on towards other issues, even as the administration will
seek to continue the game. The collective efforts of GOP
leader Tom Cross and Speaker Michael Madigan to circulate an
anti-GRT resolution for a majority of House members to
demonstrate opposition to the GRT, the special full-day
Committee of the Whole proceeding to hear testimony on the GRT
and the overwhelming anti-GRT vote on the resolution should
make it clear there is little sentiment for a GRT in the House
of Representatives.
I do not think the Governor really
cares about the GRT so much as he cares about big money to
fund expanded public funded healthcare. Without the GRT, his
healthcare ambitions are restrained by more limited revenues
than would be available from his huge GRT plans.
Your
Chamber has done an exceptional job both fighting and leading
a multi-faceted anti-GRT campaign. Unlike President Bush, we
won’t declare the mission accomplished until the General
Assembly has gone home. We aren’t letting up, because in the
Capitol the dead have been known to rise time and again.
For example, on Tuesday afternoon with only one hour
notice the Senate Executive Committee amended SB1 to raise the
GRT rate a second time and include another exemption. At least
four of the Senate Democrats who voted to move the bill out of
committee had previously implied privately that they did not
approve of the GRT and yet they voted “aye” when the time came
to halt the measure or move it forward. The only Democratic
Senator with the conviction to vote against what his
colleagues know is an economic disaster and job killer was
Senator Viverito of Chicago. The obvious lesson: on this
matter no legislator’s rhetoric can be trusted until they cast
their votes and reveal true commitments.
The
legislator’s waffling language, “not in its present form”,
“needs more work, so I’m voting to keep it alive” or “the
whole Senate needs a chance to hear this bill” is not
acceptable. The GRT plan must die. There are no exemptions,
credits, rate reductions or other exceptions that will make
the tax acceptable to the Illinois Chamber. We need
legislators who will commit unequivocally to voting NO on any
version of a GRT and follow through with their votes whenever
the bill is presented to them.
Following GRT, the
debate will shift to the Governor’s 3% payroll tax and how
much healthcare it can finance. Of all the major public policy
issues facing the General Assembly, healthcare is the one
least ready for prime time. There are way too many questions
and unfavorable consequences being glossed over in what has
become a heavy-handed routine with the current
administration’s approach to governing. The Governor’s plan is
expansive, generous and undoubtedly under-funded. The 3%
payroll tax is an obvious “loss leader” with untold future
costs to follow.
I think it likely the Governor is in
the healthcare battle for the long haul. His commitment
appears genuine. Yet, we know the state can not adequately
fund existing public healthcare programs and has done little
to restrain costs. We would prefer state subsidized healthcare
be deferred until another day, especially in consideration of
the 2008 presidential campaigns making the topic a national
priority. Unfortunately, politics suggests the Governor has to
have a “healthcare win” when the General Assembly adjourns
because he has made it his priority.
Thus, I predict
the healthcare battle will be central to this General
Assembly’s final resolution. I think our challenge is to find
a definition of “win” that has the least cost and least
expansion associated with it while helping address some of the
healthcare needs of Illinois’ poor, uninsured, small employers
and sole proprietorships. Consequently, we’re aggressively
fighting the Governor’s expansive healthcare plans while
trying to develop reasonable solutions that favor private
markets, help business owners and don’t shackle taxpayers to
impossible long term expenses. We’re learning all we can and
want to craft alternatives to government programs that may
lead us to having more people with government subsidized
healthcare than are actually working in our state. As with the
GRT, I think most legislators are highly skeptical of the
Governor’s ambitious healthcare initiatives and fear the
future implications.
Without GRT, I predict tax
attention to once again shift towards the HB/SB 750 plan.
Unlike the Governor’s GRT, this approach has some standing
with legislators in part because it has been around long
enough to have been socialized among legislators and
constituent advocacy groups dependent upon ever increasing
government money. Most everyone understands the basic concept
of income tax increase and property tax relief; even as
details for sales tax base broadening and elements of tax
relief for lower income individuals have shifted over the
years. As currently offered, the bill is still a huge tax
increase. In the eyes of many, it attempts to accomplish way
too much “reform”. Reform is an expensive concept, especially
when the proponents intend the measure to have a NET GAIN of
billions of dollars of new unrestricted revenue to satisfy
more state spending.
Even so, for those who believe
the state has a significant structural revenue problem that
cannot be met without new taxes, I would suggest 750 is the
most likely framework for a general tax increase. For example,
there is a growing recognition that the state will never be
able to resolve its unfunded pension liability, an amount that
exceeds $40 billion and continues to grow, without a new
revenue stream dedicated solely to that purpose. The General
Assembly budgeters will admit they have trouble meeting
current pension obligations with existing cash flow and have
little confidence of paying down the outstanding debt.
You should expect to hear increasing discussions on a
scaled-down version of 750 with a simple 1% increase in the
individual income tax rate and the companion 1.6% increase in
the corporate income tax rate. Such a combination would
generate approximately $3.7 billion. The likely claims on the
funds would be 1) public employee pensions, 2) education, 3)
healthcare, 4) infrastructure and 5) tax reforms.
Despite the Governor’s constant objection to an income
tax increase it remains the most viable option for many
legislators. I refer to it as the Governor’s “Brer Rabbit”
strategy or, to paraphrase Flip Wilson, “The legislature made
me do it!” During Wednesday’s special House of
Representative’s hearing on the GRT, Governor Blagojevich
repeatedly assailed the idea of expanding either income rates
or the sales tax base. He was adamant, but obviously out of
line with the sentiment of most fiscal policy experts who also
testified.
You should note that on Monday of this
week, the business-funded Civic Federation of Chicago issued a
report that included a recommendation to increase income taxes
as mentioned above. It is a good report and I commend it to
your reading pile. You can access it on the Civic Federation web site.
This report is consistent with the Civic Committee of
Chicago’s December 2006 report with a similar conclusion. Both
organizations emphasized fiscal restraint and significant
policy reforms must accompany any tax increases. Tax increases
alone will not improve the state’s long term fiscal health.
Both organizations demand fundamental policy changes.
I anticipate the Taxpayers’ Federation of Illinois
will join the other two prominent business funded think tanks
with similar recommendations. The Taxpayers’ Federation is
also engaged in identifying and promoting “loophole closing”,
but no specifics have emerged.
However, before the
legislature gets serious about an income tax alternative, I
predict a rising interest in approving a gaming bill as a
means to bring in significant new revenue. Gaming is seen as a
less offensive form of raising revenue than straight tax
increases. Most legislators think of gaming receipts as
voluntary contributions from the players and perceive the
casinos as having been awarded a state franchise to print
money for the government to extort any time legislators feel
the need. After all, casinos have already experienced an 85%
GRT and other abuses on their business. Whether or not a
gaming package with new stations being authorized for existing
casinos, allowing horse tracks to introduce slot machines or
expanding the number of cities with casinos (current number in
the queue is four) can emerge as a favored cash cow for the
state treasury has repeatedly proven problematic. Still,
people want the money and gaming expansion offers billions.
The Transportation for Illinois Coalition is one such
interest group that wishes to lay claim on increased gaming
receipts to help finance a multi-billion dollar capital
program. Transportation interests would like to claim at least
$500 million and preferably more to help finance public
transit construction and displace road fund diversions
currently being used for general government spending.
Transportation interests would prefer traditional user fee
revenue be restored to the Road Fund where it can be dedicated
to capital projects. Meanwhile, the increased gaming receipts
can backfill the General Fund and relieve political pressures
to continue to rob the Road Fund.
At a May 8 meeting,
the Transportation for Illinois Coalition approved a press
release and scheduled a press conference to promote a $5
billion five-year transportation infrastructure program. Such
a program would require approximately $2 billion in new tax
sources. The aforementioned claim on gaming revenues would
account for a significant portion of the TFIC program. TFIC
isn’t going to specify funding details, but will reveal a menu
of tax sources that should be considered. It is highly
unlikely the General Assembly will authorize a $5 billion
program, but the Coalition’s intention is to get
infrastructure funding back on the agenda while GRT is
beginning to fail. The prevailing theory is that the GRT has
dominated the public policy agenda long enough and that if
anything is going to move on infrastructure funding, the time
to promote it is now.
As co-chair of TFIC, I will be a
prominent spokesperson in advocating the Coalition’s
objectives even though the Illinois Chamber has not
specifically embraced a transportation program. However,
neither has TFIC. The specifics of what may or may not be
politically acceptable to legislators where tax and fee
increases for transportation are concerned is still some days
away. TFIC isn’t telling the legislature exactly what to do or
what revenue components should be raised. The objective is
merely to get attention on the issues and try to move the
program higher on the agenda. New revenue is essential if
transportation infrastructure needs are to be met, but it is
also incumbent upon the Illinois Department of Transportation
to begin working with legislators to define the construction
program the revenues will support. Once again, politics and
posturing have been holding up progress.
The short
hand summary is as follows: The Governor only seems to care
about expanded healthcare and big money extracted from
employers to fund it. Senate President Jones is most committed
to big dollars for education. Speaker Madigan has said his
priorities are a fiscally sound budget (including concern
about honoring pension commitments) and infrastructure. Leader
Cross has expressed an interest in infrastructure funding, as
has Leader Watson. Madigan, Cross and Watson are least
interested in tax increases and all think the Governor’s
healthcare plans are poorly thought-out and likely foretell
trouble. Madigan, Cross and Watson could probably live within
the existing state budget/income projections, but the
prevailing sentiment is that this Democratically-controlled
General Assembly can’t cut education or healthcare
entitlements and that’s where all the spending growth goes.
Despite having over $1 billion in projected revenue growth, if
the public employee pension obligations are honored, there
will be less than $400 million new dollars available to spend
for all other government programs and services. Madigan
doesn’t think this Democratically-controlled General Assembly
can live within its means and a tax increase scenario will
emerge.
In the modern era of Illinois government
beginning with the 1970 Constitution we have seen the General
Assembly abdicating its institutional obligations for setting
tax, budget and fiscal policies while deferring to the
leadership of a strong executive. Consequently, I doubt a
Democratically-controlled legislature has the backbone to roll
over the governor of their own party and that suggests a
stalemate over the Governor’s convictions on healthcare and
income tax. A stalemate may not be all bad for employer
interests if it results in more fiscal discipline and matching
spending with existing revenues. As most of our members would
say, “Stop spending, stop adding new programs and learn to
live within your means”.
Other important issues that
continue to stir in the Statehouse are the continued clamor
for an electric rate rollback, the trial lawyers’ “deep
pockets”, “pain and suffering” and anti-business legislative
initiatives, statewide franchise legislation for AT&T to
more easily introduce video services to compete with incumbent
cable providers, and numerous pro-labor initiatives. In
addition to the 3% payroll tax, another dangerous tax measure
quietly moving towards approval is an internet sales tax
measure that has huge implications for Illinois’ sales tax
laws and allocation of municipal receipts. Commonly referred
to as the Uniform, Streamlined or Simplified Sales Tax
measure, it has national tentacles and represents tax
increases. Of course, why else would government pursue it?
We’re on a steep learning curve trying to absorb all
we can about healthcare matters. We’re also trying to press a
reform agenda for healthcare, education and pensions so that
those with big spending agendas don’t get away with ignoring
pro-business, pro-taxpayer, and better government issues that
need to be incorporated in order to improve public policy. We
want to hold our governments and government officials
accountable for their policies. How else can we impose fiscal
discipline and get outcome-focused results?
I will
attempt to offer more updates and analysis as this busy
legislative season progresses. No one is yet predicting the
General Assembly will reach adjournment on the prescribed date
of May 31. You are always welcome to call or email me any
time. |
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