My friend Mike O’Hare and my University of Chicago colleague (and fellow Princeton engineering alumnus) Todd Henderson are fighting over the expiration of the Bush tax cuts. I’ll let that exchange speak for itself, except for one comment. Whatever one thinks about the Bush tax cuts, professors like us should pay higher state income taxes here in Illinois.
I’ve written a few pieces lately on the precarious financing of state public employee health and pension funds. Thanks to inexcusably back-loaded collective bargaining agreements and accompanying budget shenanigans by Springfield politicians of both parties, Illinois now faces large unfunded liabilities that will drive our structural deficit long after the current economic crisis is resolved. Many states-Illinois included-continue to presume unrealistically high expected returns to avoid confronting the full magnitude of this problem.
Atypical but prominent corruption or sweetheart deals convince many voters that the problem here is caused by lavish and excessive pensions to public workers. In my view, some adjustment to current and future pensions is indeed warranted. Yet the real problem is not the pensions themselves but the failure to properly finance them or to raise adequate revenue to cover the state’s obligations.
Here’s where Professor Henderson and I come in. We should pay a few percentage points more in state income taxes to help fix this problem. For every dollar I pay in income taxes to the federal government, I pay about twelve cents to the state of Illinois. Our 3 percent income tax produces high burdens on low-income people in the form of other taxes. It also leads Illinois to rank 40th in the nation in the taxes we levy on the wealthiest 1% of citizens. And we just don’t raise enough money this way.
The results are predictable: poor services, and desperate budget measures that kick the financial can down the road to burden future constituents, taxpayers, public workers, and others. Illinois schools and other public services are not what they should be, either, when one considers the tremendous resources available across our state. These services won’t get better if nothing is done as additional bills come due.
This is where people like Professor Henderson and I come in. If people like us pay two or three percentage-points more in state income taxes, Illinois could raise several billion dollars in additional tax revenue every year. This would be enough to cover most or all of the unfunded liabilities in our public employee pension and health benefit systems. It would reduce our reliance on regressive and overly cyclical sales taxes. I wouldn’t be overjoyed to pay higher taxes. In these troubled economic times, people like us with secure six-figure incomes can certainly step up to do more.
If such taxes were enacted as part of a broader package to improve the state’s fiscal posture, it could have a huge impact in other ways. As affluent, tenured professors at one of the nation’s leading universities, we can afford to pay a little bit more. We also have much to gain from getting our state’s fiscal house in order.
I can’t say I am a disinterested observer. As a caregiver for an intellectually disabled man, I’m disgusted that Illinois ranks 51st in the nation in its ability to provide community-based housing and services to intellectually disabled people. I’m disgusted by the way families are treated when they-when we-need help. I’m disgusted by the long waiting lists for important services. We can do a hell of a lot better than this.
So Governor Quinn, raise my taxes already. It’s ok. Really.
Too bad your income tax isn't graduated, so Illinois doesn't have an easy way to focus on high earners.
Harold — I don't know if you are under this system, but when I attended the University of Illinois, professors did not pay social security taxes on the grounds that they had their own pension. Is this still policy?
Michael,
It's worse than that. I was talking with brother Saturday, who is a retired California municipal employee. He served on several union negotiation teams in the 90s. He told me that CalPERS was rebating large amounts of money to his city (and I presume other governmental entities as well) because their investments were doing so well.
In a union negotiation, the union noted this fact and pointed out that in fact some portion of this money belonged to the City's employees. They suggested the City Council adopt one of two courses of action. One was to share the rebate with the City's employees in the form of a rebate or a bonus. The Council was loathe to do anything like that. The alternative suggestion was to place the rebates into a rainy-day escrow account. Then, when the market turned sour there would be funds available to pay the inevitable CalPERS assessments. The Council refused to do that, too. Instead, they put the rebates into the City's general fund.
Now the assessments are coming (all over California), and cities are blaming the horribly greedy retirees for having to raise taxes to pay the CalPERS assessments. This is not to say that there aren't crooks among municipal management officials: the City of Bell is a clear counterexample. But people are directing their anger at the wrong folks: city council members and county supervisors who worked on the operating assumption that there would never be another financial rainy day are responsible for this mess.
And to Keith, I don't know about Illinois, but my wife just took a job with University of Cincinnati. She's not covered under Social Security. It ends up being about a wash though, because her retirement contributions amount to about the same.
Professor Pollack:
As an Illinois resident, I must take issue with one assertion you've made. Illinois cannot possibly be ranked as low as 51st in the nation in providing "community-based housing and services to intellectually disabled people." We have one of the largest legislatures in the nation, so surely Springfield must be among the nation's leaders in housing the intellectually disabled. Exhibit A: The leadership in the state House. For the last two decades.
Oh, I'm sorry, you meant a different kind of "housing," didn't you?
— a single parent of psychiatrically disabled (but intellectually gifted) children
I have come a little bit late to the entire affaire d'Henderson, but I wanted to give a somewhat personal perspective on the entire thing.
I grew up in Hyde Park, you see. My parents both worked for the University of Chicago, although neither was a professor, and for a brief time, my mother considered trying to get me into Lab School (where Henderson's kids go, apparently). But back then, the local public high school, Kenwood Academy (home of the mighty Broncos, always "working on a victory" but never managing to win a state championship, unless you count the chess team that one year), was quite good. The kids at the top academically could end up going to very good colleges (my year, class of 1988, the top 4 seniors went to Stanford, Harvard, University of Chicago with a full tuition scholarship, and Stanford), and there were several AP classes offered. The school was close enough to the U of C that students who had taken AP Calculus before their senior year could enroll in college-level math classes there.
From what I hear, Kenwood Academy has been on a serious slide since then, although it was always something of a two-tier school, with solid honors and AP students and underachieving regulars students. But a two-tier school is better than a one-tier school, which is what it apparently has become.
There are multiple reasons for this, but there is one story that comes to mind. My brother, who was in the class the year before me, took several classes at the University of Chicago his junior year: math, intro to physics, and Sanskrit. Say what you will about academics, but if there's a bright high-school student who's eager to punch above his weight class, they will move heaven and earth to get him into the ring, if you'll pardon my thoroughly-scrambled mixed metaphor.
No points if you can guess what happened next. The parents of some of the Lab School students complained: they were spending good money to send *their* kids to Lab, where one of the perks was that students could take classes at the University of Chicago if they were smart enough to do so. And here was this kid at the public high school doing the same thing!
The University of Chicago, instead of telling these parents that they were pathetic and contemptible for trying to create an artificial barrier for the Kenwood students, created a new rule. The Kenwood kids could only take one class at the University of Chicago at a time. My brother decided to go to MIT after his junior year, because that was the only way he'd get to take enough college classes to challenge him.
Look, I honestly don't blame Professor Henderson for sending his kids to Lab. But part of the reason why his hand was forced like that is because of the parents of previous Lab students. So I urge him to get this rule permanently overturned. It won't be enough on its own to turn Kenwood from a bad school to a decent one, but it will help attract some good students, so maybe a decade or so from now, parents don't have to break the bank to ensure that their kids get a good high school education.
Absolutely Illinois's income taxes should increase (and yes, I pay taxes there). But the person who needs to be persuaded is not Pat Quinn but Michael Madigan, who shot down Quinn's every attempt to get a reasonable tax policy through the Illinois legislature. Madigan cares about nothing but keeping power, and raising taxes is never the way to do that. Can you say DINO?
Class Trator.
So? Give them your money voluntarily, then. Anybody who says, "Raise my taxes!" who isn't voluntarily kicking in the money, is really saying, "Raise their taxes!" 'Cause you don't need a tax increase to give more of YOUR OWN money to the government.
Spoken like a true libertarian, Brett. You've almost renewed my faith. Why don't we handle taxation the way my United Way donations are handled? I can tell UW, "I want $X of my money to go to Charity A," or "I don't want any of my money to go to Cause B," or the default, which is to allocate the remainder as you like.
This seems like a well balanced solution to me. Of course, this is all dependent upon pension professionals willing to sacrifice in the short term. Although somewhat of a narrow solution, truly more people in Illinois should take a similar stance which could really help narrow the deficit gap substantially.
Look, Dennis, advocate that other people's taxes be raised all you like, just don't pretend you're doing something else. You don't need the governor's help to raise your own taxes.
And, I think the United Way approach actually does have a lot to say for it. If the legislature wants our money spent on something, maybe they SHOULD have to convince us to fund it.