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Work an Extra Week to Pay for Gov. Quinn’s Tax Hikes

Work an Extra Week to Pay for Gov. Quinn’s Tax Hikes

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Published by: Illinois Policy Institute on May 11, 2011
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May 11, 2011

Average Illinois Household to Work an Extra Week to Pay for Gov. Quinn’s Tax Hikes, Public Pensions
“…The state is on target to end its fiscal year June 30 with an $8.3 billion blot of red ink on its books. … The political problem is explaining to taxpayers why that is the case even after the state income tax was raised by 67 percent. Most of the tax hike is needed to make the state’s pension payments, and the rest basically is needed to make up for lost federal Medicaid money.” – Doug Finke, Statehouse Insider column, State-Journal Register, May 1, 2011 To pay for Gov. Quinn’s tax hikes and the rising cost of state pensions, Illinoisans will lose out on an extra week’s paycheck this year. Most Illinoisans would instead prefer to see pension benefits reduced for current employees. Graphic 1 (next page) illustrates the average spending by household on major expenditures, including federal, state and local taxes. All expenditures are estimated for fiscal year 2012, which is the first full year under Gov. Quinn’s new tax hikes (see Methodology section). If Gov. Quinn’s tax increases had not been passed, the average Illinois household would spend $10,988 in state and local taxes in fiscal year 2012. This amount represents more than the combined annual spending on food ($7,013) and healthcare ($3,805) for an average family. However, Graphic 2 shows how the state and local tax bill will climb by $1,594 thanks to Gov. Quinn’s tax increase. This increase is nearly equal to what an average Illinois household spends annually on clothing: $1,699. It also will raise the average combined federal, state and local tax bill to $12,582. As a result, this higher tax bill will mean fewer dollars for all other spending. Graphic 2 also shows the spending reductions assuming an across-the-board cut in household spending. For instance, the housing budget will have to fall by an estimated $517 dollars that will instead be sent to Springfield. (Better plan to turn down the thermostat next winter.) Alternatively, another way to look at the higher state tax bill is to estimate the additional time spent working to pay for it. Graphic 3 shows that without Gov. Quinn’s tax hikes, the average Illinois household would work 58 minutes per workday to pay their state and local tax bill. Graphic 4 shows the added tax load resulting from the tax hike; the average Illinois household will have to work nine more minutes a day to pay their local state or tax bill – which comes out to 67 total minutes of each workday going to state and local taxes alone. While an extra nine minutes per workday may not sound too onerous, consider that this works out to a full workweek over the entire year. That’s right. In order to pay Gov. Quinn’s higher tax bill, the average household will have to send an entire week’s paycheck to Springfield. This isn’t what voters want. A January 2011 poll of 500 likely voters commissioned by the Illinois Policy Institute asked Illinoisans how to address the state’s increasing pension costs. Sixty-four percent of respondents said that benefits for current public employees should be reduced, while 26 percent felt that Illinois state taxes should be raised (Graphic 5). In other words, state leaders are pushing a “solution” to the pension problem in the form of tax hikes that is directly opposed to what the majority of voters prefer, which is prospective pension benefit reform.

Tax & Budget Brief

J. Scott Moody is a senior fellow for Budget and Tax Policy for the Illinois Policy Institute.

Page 2 of 4

Graphic 1. Major Expenditures per Illinois Household WITHOUT Gov. Quinn’s Tax Hikes (Fiscal Year 2012)
Insurance $6,209 Other; $5,886 Federal Taxes; $25,612

State leaders are pushing a “solution” to the pension problem in the form of tax hikes that is directly opposed to what the majority of voters prefer.

Entertainment; $3,055 Healthcare; $3,805

Transportation; $8,894

Clothing; $1,699

State and Local Taxes; $10,988 Housing; $17,568 Food; $7,013

Source: U.S. Department of Commerce: Bureau of Economic Analysis and Census Bureau, U.S. Department of Labor: Bureau of Labor Statistics, Tax Foundation, Congressional Budget Office and Illinois Policy Institute.

Graphic 2. Major Expenditures per Illinois Household WITH Gov. Quinn’s Tax Hikes (Fiscal Year 2012)
Insurance $6,026 Other; $5,713 Federal Taxes; $25,612

Entertainment; $2,965 Healthcare; $3,693

Transportation; $8,632

Clothing; $1,649 State and Local Taxes; $12,582 Housing; $17,051 Food; $6,806

Source: U.S. Department of Commerce: Bureau of Economic Analysis and Census Bureau, U.S. Department of Labor: Bureau of Labor Statistics, Tax Foundation, Congressional Budget Office and Illinois Policy Institute.

Page 3 of 4

Graphic 3. Minutes of an Eight-Hour Workday Needed to Pay for Major Expenditures per Illinois Household WITHOUT Gov. Quinn’s Tax Hikes (Fiscal Year 2012)
Entertainment 16 Healthcare 20 Transportation 47 Insurance 33 Other 31 Federal Taxes 136

Clothing 9

State and Local Taxes 58 Housing 93 Food 37

Source: U.S. Department of Commerce: Bureau of Economic Analysis and Census Bureau, U.S. Department of Labor: Bureau of Labor Statistics, Tax Foundation and Illinois Policy Institute. Numbers may not sum to total due to rounding.

While an extra nine minutes per workday may not sound too onerous, consider that this works out to a full workweek over the entire year.

Graphic 4. Minutes of an Eight-Hour Workday Needed to Pay for Major Expenditures per Illinois Household WITH Gov. Quinn’s Tax Hikes (Fiscal Year 2012)
Insurance 32 Other 30 Federal Taxes 136

Entertainment 16 Healthcare 20 Transportation 46

Clothing 9

State and Local Taxes 67

Housing 90

Food 36

Source: U.S. Department of Commerce: Bureau of Economic Analysis and Census Bureau, U.S. Department of Labor: Bureau of Labor Statistics, Tax Foundation and Illinois Policy Institute. Numbers may not sum to total due to rounding.

Page 4 of 4
Methodology This analysis is based on fiscal year 2012, which is the first full fiscal year under the higher Illinois tax rates. The consumption data is based on the 2009 Consumer Expenditure Survey (CES) published by the U.S. Department of Labor’s Bureau of Labor Statistics. While the CES only publishes data by region, the estimate for Illinois was created by allocating the regional data based on Illinois’s share of personal income for the midwest region. The data was extrapolated to fiscal year 2012 using the Consumer Price Index forecast from the Congressional Budget Office. The fiscal year 2012 state tax collections are based on data from the Commission on Government Forecasting and Accountability: http://www.ilga.gov/commission/cgfa2006/ Upload/FY12econforecastrevestimate.pdf. The local tax collection was extrapolated from data from the U.S. Department of Commerce’s Census Bureau. The fiscal year 2012 federal tax collection data is from the Congressional Budget Office. The estimate for Federal taxes paid by Illinois is based on data from the Tax Foundation: http://www.taxfoundation.org/files/sr139.pdf.

Graphic 5. Illinoisans Prefer Pension Benefit Reform over Tax Hikes
“In 2015, pension payments will increase from $4 billion per year to $8 billion per year, and there will not be enough revenue to cover this increase. What do you think should be done to cover this increase? Do you think that...”

Sixty-four percent of respondents said that benefits for current public employees should be reduced, while 26 percent felt that Illinois state taxes should be raised.

Source: Poll of 500 likely Illinois voters was conducted by Public Opinion Strategies on behalf of the Illinois Policy Institute between January 10-11, 2011. N = 500 Likely Voters. Margin of Error = + 4.38%.

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