ITEF Comment – Volume 15, Issue 10

TOTAL STATE REVENUES DIP MODESTLY IN FY2009

By Jim Tobin

For the first time in six years, since ITEF began tracking state revenue, total Illinois state revenue is down from the previous year, according to data from the Illinois Comptroller’s website. Total tax revenue for the first 9 months of FY 2009 decreased $742 million, 1.7%, over the same period in FY 2008.  This modest dip in state revenue is not a fiscal crisis.

State legislators and newly appointed Governor Patrick Quinn are trying to raise the state income tax by 50%, raising the corporate income tax rate in Illinois from 7.3% to 9.7%, making it the fifth highest of any state in the US. This, combined with a 50% hike in personal income taxes, would prevent the creation of 70,000 Illinois jobs.  So far, personal income tax revenue for FY2009 is down $120 million, 1.9%, from the first nine months of FY2008.  However, state income tax revenues increased $2.3 billion in the two years ending June 30, 2008, without a rate increase. Corporate income taxes have decreased $235 million or 14.8% so far in FY09.

State sales tax revenue dropped by $316 million or 4.4% while tax revenues from the federal government were up $244 million or 2.5%. However, federal revenue will jump by up to $11.5 billion over the next 19 months, thanks to the federal stimulus plan.  Once again, oppressive state taxes caused Tobacco Tax revenues to decline, this time by $19.4 million or 4.2%, while the new statewide smoking ban contributed to a massive drop in casino tax revenue, to the tune of $125 million or 24%.   Motor Fuel Taxes did manage to increase in FY2009, going up by $45.3 million or 5%.

The unfunded portion of Illinois retired state and local employees’ pension and health care funds now stands at $110 billion. That total can be reduced by $50 billion without raising the state income tax by requiring government employees to increase their contribution to the pension fund by 5 percentage points.  Additionally, government employees should be required to pay at least 3% of their payroll for retirement health benefits and at least $250/mo after retirement. Under current law they pay nothing for either and receive health, dental, vision and life insurance for themselves and their dependents after retirement. This very reasonable requirement would also save another $30 billion in unfunded health care liability. Note that $250/month is less than most Medicare recipients pay for inferior coverage.

Total state revenue had increased beyond the rate of inflation during the six years ending June 30, 2008, so the modest dip this year is hardly what state politicians are calling a “revenue crisis.” It is a spending problem.  Had the state budgeted better and not just assumed that revenues would continue to increase forever, the state would be better able to withstand a downturn in the economy. Instead the state went on a spending spree with little or no regard for the future.

The ITEF analysis of the first 9 months of FY2009 Illinois state revenue may be found on our web site at www.taxpayereducation.org.

Jim Tobin is the President of the Illinois Taxpayer Education Foundation (https://www.taxpayereducation.org/)

Click here for a printable copy of the ITEF Comment.

Click here for a printable copy of the FY2009 Revenue Analysis.

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