The Illinois debt problem has various underlying reasons. As highlighted by a report coauthored by Paul Volcker the deficit is also the result of a limited tax base. The tax base is limited since it excludes nearly 50 percent of the economy from the sales tax.
This narrow regime defies reality. From the second half of the twentieth century onward, the largest part of the national economy has become the service sector. This economic has also expanded the fastest. It now constitutes 80 percent of the economy. Earlier it constituted around 60 percent by mid century.
Other states have responded to this conversion by widening their tax net to include services. Unlike the norm, the net remains mostly applicable to real goods. Just seventeen services are taxed. What this means it is the exception to the rule, as only three states have a smaller net. The norm nationally is fifty six. In fact, neighboring Iowa exceeds the national average and taxes ninety four services.
The Commission on Government Forecasting and Accountability research has indicated taxing services would increase annual revenue by about 4 billion dollars. This figure would go a significant way towards paying for about fifty percent of the current backlog of unpaid, officially recognized, bills. There is a greater backlog if presently unapproved charges are to be included. By September 2012, the official amount was five billion dollars.
The reason only goods were taxed was because services were small slice of the economy when this tax policy was enacted in the 1930s. Services have risen, according to the Commission researchers, from less than one third of gross state product in 1977 to almost half. By extending the sales tax to services the taxing regime would be modernized to reflect an evolving economy.
Not unlike other states, there is also a significant underfunded pension crisis. The government has played a role in this growing crisis. As noted in the Volker report years of pension bond borrowings and a practice of covering deficits this way has added to the burden. By 2012, according to Bloomberg media compiled data, the retirement system had the least amount of assets needed to meet the obligations promised to public sector retirees. An underlying factor, often not mentioned in the discussion of this problem, is that this is where the most number of local governments are in the country. Pennsylvania, which is the second most fragmented, is home to a quarter of public pension plans. Yet, the word pension is rarely used in any discussion of the need for local government reforms.
As this scenario continues, there has developed a deliberate strategy of a backlog of unpaid bills. This strategy has brought hardship to the parties assisting the government carry out its business. It is troublesome to see that a makeshift mechanism has become an accepted tool of managing the budget. The burdened service providers have been forced to borrow themselves as they reduce their output and cut jobs.
This mess is enriching some bond investors. The borrowings have become popular investments for investors seeking a greater return by investing in riskier investments. The present climate of low interest has reduced borrowing costs. The result is that Illinois debt continues to grow. This bodes ill for the chances of a reduction in the burden any time soon.
This narrow regime defies reality. From the second half of the twentieth century onward, the largest part of the national economy has become the service sector. This economic has also expanded the fastest. It now constitutes 80 percent of the economy. Earlier it constituted around 60 percent by mid century.
Other states have responded to this conversion by widening their tax net to include services. Unlike the norm, the net remains mostly applicable to real goods. Just seventeen services are taxed. What this means it is the exception to the rule, as only three states have a smaller net. The norm nationally is fifty six. In fact, neighboring Iowa exceeds the national average and taxes ninety four services.
The Commission on Government Forecasting and Accountability research has indicated taxing services would increase annual revenue by about 4 billion dollars. This figure would go a significant way towards paying for about fifty percent of the current backlog of unpaid, officially recognized, bills. There is a greater backlog if presently unapproved charges are to be included. By September 2012, the official amount was five billion dollars.
The reason only goods were taxed was because services were small slice of the economy when this tax policy was enacted in the 1930s. Services have risen, according to the Commission researchers, from less than one third of gross state product in 1977 to almost half. By extending the sales tax to services the taxing regime would be modernized to reflect an evolving economy.
Not unlike other states, there is also a significant underfunded pension crisis. The government has played a role in this growing crisis. As noted in the Volker report years of pension bond borrowings and a practice of covering deficits this way has added to the burden. By 2012, according to Bloomberg media compiled data, the retirement system had the least amount of assets needed to meet the obligations promised to public sector retirees. An underlying factor, often not mentioned in the discussion of this problem, is that this is where the most number of local governments are in the country. Pennsylvania, which is the second most fragmented, is home to a quarter of public pension plans. Yet, the word pension is rarely used in any discussion of the need for local government reforms.
As this scenario continues, there has developed a deliberate strategy of a backlog of unpaid bills. This strategy has brought hardship to the parties assisting the government carry out its business. It is troublesome to see that a makeshift mechanism has become an accepted tool of managing the budget. The burdened service providers have been forced to borrow themselves as they reduce their output and cut jobs.
This mess is enriching some bond investors. The borrowings have become popular investments for investors seeking a greater return by investing in riskier investments. The present climate of low interest has reduced borrowing costs. The result is that Illinois debt continues to grow. This bodes ill for the chances of a reduction in the burden any time soon.
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