Ralph Martire, executive director of the bipartisan Center for Tax and Budget Accountability (CTBA), was in Austin in May to simplify Springfield’s current budget drama. The presentation, held at the Austin Library, 5615 W. Race, was sponsored by the Westside NAACP and also featured Amara Enyia, a public policy consultant and executive director of the Austin Chamber of Commerce. The CTBA’s policy solutions to the state’s pension problem were also cited by the court in its landmark pension decision. Below are excerpts from Martire’s presentation:
On the state’s debt problem
Illinois doesn’t have a pension problem, it has a debt problem. The vast majority of this payment isn’t the cost of funding benefits. Of the $6.8 billion pension payment [Illinois owes to retired workers this year], only about $1.3 billion is the cost of funding benefits for workers. The rest is repaying the debt we owe the pension systems, because for decades the state has borrowed what it owed to the pensions and used that money to pay for core services [i.e., education, human services, workforce/economic development] and now we’re paying it back.
We don’t owe this money to a bank, we owe it to our own pension system. The way we pay it is simply a creature of state law. The law passed in 1995 says, ‘You know what? Let’s not pay them back for the next 15 years at all. In fact, for the next 15 years, let’s keep borrowing. Let’s borrow, use that money to fund services and then somewhere around 2015 or so, let’s start ramping up the repayments because we’ll all be out of office then and somebody else is going to have to deal with it.’ That’s what they did. They passed this law in 1995 and sold it to us as a responsible funding mechanism.
The problem is debt, so we have got to stop elected officials from taking the unconstitutional approach of focusing on benefits as a way to solve the pension problem when benefits have nothing to do with the debt we owe. It’s simply irresponsible borrowing.
On the extent to which pensions are underfunded
Our unfunded pension liability in 1995 was $17 billion. By law, through 2008, they grew that unfunded liability to $48 billion. [Right now it’s upwards of $111 billion]. That’s how much more they borrowed between 1995 and 2008. By law. Why did they borrow against the pensions? Because our tax policy doesn’t work.
On the root of Illinois’s debt crisis
The way we designed our tax system — it doesn’t generate enough revenue growth every year to just maintain the same level of services provided … it doesn’t grow with the economy or inflation. Basically, the pensions have subsidized the cost of service delivery for decades. The state decided to borrow against the pensions, not deal with tax policy. The root cause of all this is bad tax policy.
On the phasing out of the temporary tax increase
[Take the temporary tax increase, which was allowed to expire this year]. This is a self-inflicted wound. The temporary tax increase phase down meant the difference of $4.7 billion [in revenue for the state]. We’re causing ourselves to hemorrhage revenue simply by not keeping the tax rate where it was. [It was temporarily set at 5 percent before rolling back down to 3.75 percent on January 1, 2015].
We looked at who benefited from his tax reduction that just became law. This is the distribution of the tax. We sorted [Illinois residents] by their taxable income (after deductions, credits, etc.). People with $35,000 a year in taxable income or less — 60 percent of Illinois residents — only got 13 percent of the tax break.
The wealthiest 11 percent of our state got 54 percent of the tax cut. That bottom 60 percent got about $490 million in tax cuts. The wealthiest 11 percent got over $2.2 billion in tax breaks.
Anyone who says this is a middle-class tax cut is either completely ignorant of the data or lying—there’s no third option.
Millionaires, by the way, did particularly well. To be clear, these are people with $1 million or more in taxable income. They represent 0.2 percent of the state’s population. They got 13 percent of the tax break. Your average millionaire’s tax break is $37,000 a year, which is more than the bottom 60 percent have in taxable income per year. We’re paying for the phase down of that income tax by cutting services consumed by who? Folks at the top? No. Low and middle income families are seeing their services and schools cut by funding a tax break that goes to the richest people. That’s the net impact in dollars of this policy. So, maybe we ought to support putting that tax back in place.