Tax advocate: State may have to raise other taxes
CHAMPAIGN -- There's an answer to the state pension crisis, Ralph Martire says, but you might not like the answer.
Martire is executive director of the Center for Tax and Budget Accountability in Chicago. He'll speak at a Campus Faculty Association forum on state pensions at 4 p.m. Thursday at the University YMCA, 1001 S. Wright St., C. More information is at http://www.cfaillinois.org.
Martire has called Illinois' tax policy "shortsighted, irresponsible and counterproductive," especially in its deficits to the state's General Fund.
The fiscal year started almost $14 billion in the hole, more than half of the initial appropriation for the general fund, and 90 percent of that fund is spent on core services such as education.
Martire argues that state revenue growth has been insufficient to cover the growth in the cost of providing public services, so lawmakers have been using pension funds as a borrowing source.
"Pensions have a significant problem as an unfunded liability, because the state hasn't made its normal contributions at the same time that the markets have suffered," he said.
Illinois pensions are not high compared with other states', and, far from "Cadillac benefits," Martire said, state workers' pensions are actually in line with Social Security and other nonpension benefits.
He said the issue is not partisan. "There have been irresponsible financial practices by leaders of both parties," Martire said.
He said the solutions would be "distasteful" to many: After a large income tax increase, which Martire says is not large enough, other tax measures are still necessary.
He points to expanding the sales tax base to include services and taxing a small amount of retirement income. Once it made sense to tax only tangible sales, but now that services are in the range of 60 percent of spending, they could provide a revenue stream, he said.
The retirement-tax model he mentioned would apply only to benefits of more than $50,000. Someone who received $52,000 would pay tax on only $2,000 of it, he said.
Illinois is one of only three states not to tax some part of retirement benefits, he said.
