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Prairie State Wire

Thursday, January 23, 2020

Moody's Analytics: Other states fattening reserves in booming economic times, but not Illinois

State Government

By W.J. Kennedy | Dec 6, 2019

Pritzker
J.B. Pritzker

Illinois is in that not-so-august company of states that haven’t socked away money during the booming economy to weather the next recession. In fact, Illinois bests only Louisiana in its ability to take a fiscal hit in a moderate, or in a severe recession, according to Moody’s Analytics Stress-Testing States 2019

The Moody’s update determined a state's fiscal readiness by looking at both the reduction in tax revenue a recession brings and higher expenditures for Medicaid, the federal/state health care coverage program for the poor.

Per the update, 28 states are fiscally well suited to withstand a moderate recession. An additional 12 states follow close behind -- flush enough to avoid tax increases or other drastic measures in the grips of a recession.


Illinois State Capitol

Other states besides Illinois and Louisiana where a recession would amount to a fiscal catastrophe include Kentucky, Oklahoma, and New Jersey.

An AP story covering the Moody’s Analytics report said that Illinois Gov. J.B. Pritzker is banking on voters’ approval of a progressive income tax replacing the flat tax to help pay down debt; the question is on the ballot next November.

“Pritzker has said some of the (additional money raised through a progressive tax) could help pay down billions of dollars of past budget debts and go towards reducing the state’s $134 billion funding shortfall for its pension systems,” the AP story said.

But an analysis of Pritzker’s progressive tax proposal by the Illinois Policy Institute (IPI) shows that everyone, not just the wealthy, will end up paying a lot more in taxes, and the fiscal problems still won’t go away.

Illinois' dismal fiscal state lies in the fact that the General Assembly hasn’t approved a truly balanced budget since 2001, IPI says.

"At the same time, pension costs are projected to consume more than 27 percent of the state’s expected general revenues despite deteriorating fiscal conditions, significantly handcuffing spending on services,” IPI reported.

The change from a flat tax to a progressive one, moreover, would have Illinois swimming against the tide. In the past 20 years, no other state has switched from a flat income tax structure to a progressive income tax structure, IPI notes. Three states, Utah, North Carolina and Kentucky, have moved in the other direction.

“Most states that established progressive income tax structures did so in the early 20th century,” the IPI report said. “The last state to switch from a flat income tax to a progressive income tax was Connecticut in 1996. The small tax cut quickly turned into a 13% tax hike on the middle class, did nothing to solve the state’s finances or balance their budgets, was unable to stymie growth in property taxes and contributed to a 47% increase in the state’s poverty rate.”

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