When a Bad Tax is Worth Passing

I’ve been critical of the GRT proposal in the past and I will still argue it’s regressive. 

The problem is pointed out quite succinctly by Speaker Madigan

Before we finish the budget in May or June, Illinois is going to need a tax increase,” Madigan said. “You’ve heard it many, many times — we need more and better education. That takes money.”

Madigan held an open forum for about 100 students, faculty and the general public Wednesday at the College of Lake County’s Lakeshore Campus in Waukegan.

About a dozen people asked the Chicago Democrat questions ranging from increased funding for CLC to health care to immigration.

Madigan’s answer to several questions was a tax hike, but he was noncommittal on the source of the increase.

“Funding for community colleges has been about 7 (percent) to 8 percent from the state and the remainder is picked up by taxpayers and tuition,” Madigan said. “That is contrary to the one-third system that has deteriorated over the last three to four years. We need a tax increase, and funding for community colleges will be one of the issues.”

He’s non-committal about the form of that increase and he’s probably smart to do so in order to negotiate.  

However, the Blagojevich administration essentially got this right.  I don’t often say this especially after I’ve taken a position on what they are doing, but a GRT is probably the least bad of the solutions available.

 A few things seem obvious to me though many on the right will disagree out of ideology alone.

The state doesn’t take in enough money to continue to support education, infrastructure, and health care. 

The state has long term obligations that due to years of neglect are not capable of being met. 

The state isn’t paying its bills on time though it’s getting better. 

In 2002, when I endorsed Blagojevich I pointed out that both Jim Ryan and Blagojevich were lying about fiscal issues and the bill would come due eventually.  The bill is due and Blagojevich is trying to pay it.  I can fault him for taking too long, but not for trying.

I don’t like the tax he has proposed, but I dislike it less than alternatives such as HB 750.  HB 750 does a better job of alleviating the property tax issue, but not in a way I’m comfortable. The property tax is somewhat progressive even if the rapid rise in Cook County is too much too quick. Moving that revenue to an increase in the flat tax income tax is very regressive and the increase in taxes on services would be somewhat dramatic. 

The GRT, on the other hand, is somewhat regressive, but less so.  Any consumption tax is a problem, but this is a broad based tax that even with the pyramiding effect at the maximum looks like a 2.5 percent increase–less than the increase in sales taxes in HB 750 and broader in the effect.  The retail sale of food will be exempt and that is modestly (very modestly)alleviating.

I imagine the tax will undergo some changes before it passes including another increase in the gross revenues that trigger the tax (I imagine 5 million would be pretty reasonable) and I’m guessing we might see som mechanism to alleviate property taxes. I would prefer an increase in the standard deduction for individuals, but that would also lead to an increase in the rate so I’m not sure of the overall effect. 

Adding to the package, HB 750 only funds education better while this proposal will lead to universal health care in Illinois–something that can no longer wait.  The mechanisms of the bill seem reasonable especially the reinsurance for costs about $40,000 at about 80 percent by the state meaning catastrophic costs will be significantly reduced keeping plans reasonably priced.  I’m somewhat agnostic as to other details largely because while I think it is essential to put in place, a national program will be put in place in the next few years.  If Illinois negotiates that well, it may well be able to reduce some of the tax when that plan is put into place. 

There are plenty of things to complain about in the Blagojevich administration and I’m sure I will, but he’s trying here and probably has the best idea for the immediate future.  I’d like to see a move towards at least a progressive personal income tax, but that’s a longer term goal.  In terms of business, a GRT might well be the most efficient and least disruptive mechanism for the state to adopt instead of trying to track down profits and allocate them to Illinois done business.