Back in December, the Northwest Herald ran a story about a proposal to make retirement income subject to Illinois income tax. On December 2, Rep. Dave McSweeney sponsored House Resolution 890, which states that:
“We state our belief that the Illinois Income Tax Act should not be amended to permit taxing retirement income.”
I wrote about this back in October after the first whiff of the proposal hit the Chicago Tribune. At that time I said that to tax retirement income is nothing more than piling more bad tax policy onto an already broken system.
But this post isn’t about a call for more and more revenue, it’s an attempt to make sense out of why the State’s budget is so out of balance.
There’s a simple, one-word answer: pensions. As I pointed out several days ago, in the next fiscal year, Illinois’ required pension contribution will amount to a full 24% of the state’s general revenue budget.
The chart to the left shows both the “Normal” and “Actuarially Determined” contributions to the state’s 5 public pension funds for fiscal year 2017. It does not include interest due on the unfunded amount. “Normal” cost (sometimes referred to as “current service cost”) is the annual cost assigned, under the actuarial funding method, to current and subsequent plan years. The ADC is the sum of both normal and past due required payments.
As you can see, over $5.9 billion of the state’s required contribution in 2016-2017 is due to chronic underfunding. This is why Illinois can’t pay its bills, this is what decades of corruption, log-rolling and political back-scratching have gotten us. To paraphrase our President’s pastor: “Illinois’ chickens have come home to roost.” And no one in this drama has clean hands.
If the State had fulfilled its funding obligation, there would be almost $6 billion more per year to fix our crumbling roads, create a first-class education system, and provide tax relief to an overburdened population. Instead, we’re looking at 30 more years of this, as the pension funds aren’t scheduled to hit 90% of full funding before 2045.
So no, I will not support any effort to tax retirement income. The answer to our budget mess lies not in adding more taxes onto a broken system.