A feisty Gov. Pat Quinn made it clear yesterday that for both philosophical and political reasons, he believes his plan to extend permanently the “temporary” income tax hike is the right move for the state and for his effort to get re-elected in November.
In an appearance before the Crain’s editorial board, the incumbent Democrat characterized the race between himself and GOP nominee Bruce Rauner as a contest between someone who wants to be fair and believes children need a good education and a reflexive conservative who would “cut and slash” regardless of the human cost.
“I know we’re running against a campaign that says ‘tax less, spend less,’ ” Mr Quinn said. “Well, it also means learning less.”
Mr. Quinn said making the tax hike permanent would help business by providing a deeper talent pool of educated workers. And he opened a new line of attack on the GOP nominee, saying Mr. Rauner’s stated intention to end pensions for state workers and instead shift them to a 401(k)-style defined-contribution system could saddle the state with billions of dollars in new debt.
Under current law, the temporary 67 percent tax hike enacted in 2011 is supposed to start rolling back Jan. 1, with the individual rate dropping to 3.75 percent from 5 percent and the corporate rate dropping to 5.25 percent from 7 percent. But in his March 26 budget speech, Mr. Quinn proposed making the entire increase permanent to pay for aid to education and some property-tax relief, drawing a sharp contrast with Mr. Rauner, who would let the hike lapse.
In his comments yesterday, Mr. Quinn argued that the state is at “a moment in time” in which it can more adequately fund its schools and move away from a “19th-century” system in which most school revenue comes from property taxes. “We can really make a difference,” he said. “We have a system now that underfunds schools and overburdens homeowners.”
In comparison, he said, Mr. Rauner’s proposal would force a 20 percent cut in state aid to school districts and result in the layoff of 13,000 teachers.
Voters have been skeptical of tax-swap proposals in the past, fearing that many school districts would take the new state aid and keep local property taxes high. But using extra state aid as a carrot “is a much better approach with school districts than telling them, ‘We’re going to starve you,’ ” Mr. Quinn said.
The governor also rejected suggestions that his administration has made too little progress cutting the state’s backlog of bills — the original rationale for the income tax increase.
According to Illinois Comptroller Judy Baar Topinka’s office, the backlog has been cut about a third, to $6.7 billion last month from $9.9 billion in 2010. But Mr. Quinn said the real number is more like $5 billion and promised it would drop to $4.9 billion by the end of the state’s fiscal year on June 30.
Despite howls from the business community that high taxes are making Illinois uncompetitive with other states, companies are more interested in having a quality workforce than whether taxes are a little higher here vs. another state, he said.
Asked why the state’s current unemployment rate of 8.7 percent is the highest in the country, Mr. Quinn said, “The best way to grow jobs is to invest in education.”
And with 70 percent of the state’s economy driven by consumers, Mr. Quinn added, the best way to boost business is to put money in people’s wallets. He proposes to do that by doubling the state’s Earned Income Tax Credit and raising the minimum wage.
‘WE’VE MADE . . . PROGRESS’
His message to business: “You need to look at every year at a time. We’ve made some economic progress” since he took over from the impeached Rod Blagojevich five years ago.
Mr. Quinn’s current property-tax proposal — to send every homeowner in the state an annual $500 refund check — would about double what the state now spends on property-tax relief, increasing the figure to about $1.2 billion a year.
In a bit of a surprise, Mr. Quinn launched a financial attack on Mr. Rauner’s proposal to immediately stop workers from accruing further pension benefits and switch them to a defined-contribution system like a 401(k).
Even if Mr. Rauner succeeded, Illinois would still owe tens of billions of dollars to retirees for past service that the state is paying in part with retirement contributions withheld every month from the paychecks of current workers. If that revenue stream were diverted from the pension plan to a 401(k) plan, “There’s a tremendous transition cost,” Mr. Quinn said. Just one of the state’s five pension funds, the Teachers Retirement System of Illinois, estimates it would need $32 billion.
“What are you going to do, borrow $32 billion?” Mr. Quinn asked.
Indeed, Mr. Rauner has not released a detailed pension or financial plan; aides say they do not know when one will be available. Instead, he generally has suggested that the pension-reform plan adopted last year by lawmakers was inadequate and has not said whether he would raise other taxes to make up for allowing income-tax rates to drop back.