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NO WAY OUT Illinois may be stuck with 2011 tax hikes

Illinois Gov. Pat Quinn is facing an uphill election-year battle in his efforts to persuade his own partisans in the Legislature to make the state's 2011 increases in personal and business income taxes permanent.

An Associated Press story in the Sun earlier this week quoted Quinn as saying failure to retain the increases would result in "savage" budget cuts. However, it also noted that after a three-hour closed-door meeting with lawmakers, Quinn emerged still well short of the votes he needs to keep the taxes; that despite the fact that Quinn's Democrats enjoy supermajorities in both chambers of the Legislature.

As a rule we don't favor higher taxes. And we don't often agree with Quinn either. But we think he is right on this one, at least to the extent that the $1.8 billion loss in revenue from expiration of the tax would spell financial disaster for Illinois. Whether it would trigger "savage" budget cuts is an open question, since past history suggests the majority Democrats are incapable of such. What is much more likely, we fear, is yet more piling on of the unpaid bills that have become a shameful hallmark of doing business with Illinois.

The "temporary" 2011 tax increases were supposed to address an embarrassing practice wherein Illinois deferred payment of its bills by six months or more in an effort to avoid cash flow insolvency. The tax increases were substantial: a 67 percent increase in state income tax and a 46 percent rise in the levy on business earnings.

A trip through our archives suggests the benefits were short-lived. A story in 2011 said the infusion of tax money had allowed Illinois to pare its backlog of overdue bills from $6 billion to $4 billion. But it had grown back to $5 billion according to a story in October of 2011 and an editorial in late 2012 said the backlog had swelled to $9 billion, driven in large part by the impact of state employee pension and health care costs.

The unfunded liability in the state pension program soared to $100 billion before the Legislature narrowly passed reforms last year that are projected to at least arrest the growth on that liability (stories differ in their assessment as to whether the revisions will actually lead to eventual solvency of the fund).

But failure by Illinois legislators to make the 2011 tax increases permanent would go a long way toward undoing all of that. (Even if the increases are not extended, tax rates would not fall back to 2011 rates. The personal rate would drop to 3.75 percent versus 3 percent originally while the business rate would drop to 5.25 percent versus the original 4.8 percent.)

It is also ironic and symptomatic that the Legislature wants, even in this context, to further increase spending. The House has already approved a spending plan that would pump an additional $132 million into general education, $25 million more into early childhood education and $12 million more into bilingual education. There's also an extra $9 million to hire additional staffing at veterans homes and another $9 million to convert two youth prisons to treatment facilities.

Given the state's dire circumstances, it's disturbing that lawmakers are talking about any spending increases at all. The real remedy, painful as it is, would be to cap or cut spending while keeping the tax rates at the higher level. The fact that the Legislature cannot do that - in fact is not even discussing it - tells you all you need to know about how Illinois got into its current financial mess. The pathway out will require new leadership, and the seemingly inevitable permanence of the higher tax rates could serve to bring that about.

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