By Nancy Churchill
Illinois raised income taxes in 2011 to address an $8.5 billion shortfall. Four years later the state’s budget shortfall is still $7 billion as those taxes begin to sunset. So what happened, and what to do?
Illinois Policy (IllinoisPolicy.org) shows that interest payments are 3.5 times higher in Illinois than in 2011, and its credit rating has been downgraded five times since the tax hike.
Beyond that, the Pew Charitable Trusts explains, “even a return to peak levels [of income] can leave states with little extra to make up for cuts in federal aid or to pay for costs associated with population increases, growth in Medicaid enrollment, deferred needs, and accumulated debts.”
Couple that with lost jobs to trade deficits. Robert Scott at the Economic Policy Institute (EPI) writes, “Rising trade deficits are to blame for most of the 5.7 million U.S. manufacturing jobs (nearly a third of manufacturing employment) lost since April 1998…. [D]ata from the Economic Policy Institute shows that for every $1 billion in goods imported, the economy loses 9,000 jobs.”
This loss of jobs affected wages, as “people’s wages stopped rising along with productivity in the late 1970s – the same time as the trade deficits started putting downward pressure on wages.” Workers no longer share the benefits of an improved economy.
NBCNews.com, quoting the EPI, states that Illinois is fourth out of the top ten states losing manufacturing jobs to China as of 2011.
In addition, as high-profile companies like Sears and State Farm threatened to move out of state, legislators stepped in with targeted incentive packages.
Job growth in states like Texas, by comparison, “has been in response to population growth,” according to The Atlantic. Plus “Texas has the highest percentage of minimum-wage workers in the country.” Not an appealing record.
How to fix this? Slashing spending, particularly the pension fund that has been raided for decades, is tempting.
Instead, I repeat, originate a small financial transactions tax.
“Indeed,” writes Salon.com, “this solution was already proposed – Illinois state representative Mary Flowers’ HR 1554, introduced in 2013, would impose a 0.01 sales tax on all stock and derivatives transactions within the CME Group, which includes the CBOT. The tax is projected to bring in as much as $80 billion per year according to some estimates, and would even exclude transactions held in retirement or mutual fund accounts.”
The CBO agrees. “One argument in favor of a tax on financial transactions,” its budget options 2013 reports, “is that it might reduce the amount of short-term speculation and computer-assisted high-frequency trading, and direct the resources now dedicated to those activities to more productive uses. Excessive speculation can destabilize markets and lead to disruptive events, such as the October 1987 stock market crash and the more recent “flash crash” that occurred when the stock market temporarily plunged on May 6, 2010.”