Moody's warns that Pritzker's progressive income tax could accelerate flight from Illinois
Illinois Gov. J.B. Pritzker promised during his campaign that he would deliver a progressive income tax to the state, but an influential credit rating agency is urging him to rethink that.
In a report issued earlier this month, Moody's Investors Service restated its continuing concern over the state's pension crisis but warned that raising taxes could make things significantly worse and accelerate Illinois ongoing outmigration. Referring to Illinois' situation, Moody's observed that "the population loss and relatively sluggish employment trends suggest a degree of economic vulnerability that poses a conundrum: revenue growth from existing sources will be too tepid to offset escalating fixed costs, while new taxes could threaten to increase the outflow of residents."
In the little less than a month since Pritzker's inauguration as Illinois' 43rd governor, he has dealt with that conundrum largely by blaming his predecessor, Republican former Gov. Bruce Rauner, for the state's long-coming fiscal crisis. In a report called "Digging Out: The Rauner Wreckage Report," Pritzker's office placed the blame for billions of dollars in unpaid bills, the state's $7.8 billion budget deficit, more than $133 billion in unfunded pension liabilities and other financial woes squarely on Rauner's administration.
"Four years of failure and ideological warfare in Illinois state government created a mess that will take years to put behind us," the report said. The report also promised that Pritzker will fix these woes but doesn't say how, which has lead to speculation that the governor might release those details during his first budget address scheduled for Feb. 20.
In its most recent report, Moody's gave Pritzker a list of fiscal challenges the state faces, including its "massive" pension debt, "chronic" annual deficits and the ongoing outmigration crisis that threatens to further shrink the state's tax base.
Moody's also referred to reports that the governor's office might be considering an increase in near-term pension payments while keeping reductions in current state employees' retirement benefits off the table.
"In general, any efforts to boost current contributions would be credit-positive for the state, while efforts to defer or reduce contributions for fiscal relief would revive questions about pension plan sustainability," the report said.