The state of the State

Pressure builds for new taxes

By DIANE ROSS

POLITICAL RULE NO. 1: Don't raise taxes in an election year. Right? Don't count on it. Because of the cutback amendment, the General Assembly's 1982 session will be the lamest of the lame duck sessions, beginning with the March 16 primary. It's hard to say what this last large legislative class will do.

At this writing — early January — Gov. Thompson has set the stage for debate on the question of new taxes. He said he wants to call a special session of the General Assembly to consider his latest proposal: raising the state liquor taxes. (The legislature was already scheduled to reconvene January 13 to hear the governor's annual State of the State address.) And Thompson was expected to take full advantage of that forum to stress, once again, the seriousness of the state's fiscal situation. At the moment, however, the governor is more concerned with the state's general funds balance at the end of fiscal 1982, in June, than he is with spending — or revenue — at the beginning of fiscal 1983.

Thompson wants to be reelected to a third term in the fall, and his fiscal record is crucial to his chances. Despite Proposition 13, despite recession, despite Reaganomics, Thompson has managed to keep enough of a balance in the revenue funds to maintain Illinois' coveted triple-A credit rating. The governor's proposal to raise the state liquor taxes is clearly designed to boost the balance in the general funds this year as much as it is to generate additional revenue next year. Aiding him in this attempt is a second proposal: that the state make one, not two, aid payments to schools in June this year. So Thompson is still talking about cutting services, not raising general taxes. Under Thompsonomics, remember the governor has succeeded in balancing the budget by cutting the increase in spending, not spending itself. And as long as spending is still increasing, he can still cut.

But fiscal 1983 is likely to be the last year the revenue will still increase enough to cover a spending increase-at least in theory. Inflation is the state's largest fiscal problem. The increase in the cost of state services is gobbling up the increase in revenue. As a result, fiscal 1983 will likely be the first year that spending will not increase in practice. Any so-called "new money," or increase in revenue, is already committed to offset higher cost.

Meanwhile, the sales tax is not generating the kind of new revenue it used to, due to Proposition 13 fallout and the recession. The sales tax used to account for about a quarter of the state's revenue; now it accounts for about a fifth. The legislature granted manufacturers an exemption. Then lawmakers took the first penny off the sales tax or food and nonprescription drugs. The legislature also granted farmers an exemption. And then lawmakers took the second penny off food and drugs. Indeed, the erosion of the sales tax base has become so serious during fiscal 1982 that the governor has been able tc balance the budget only because the legislature agreed to roll back the manufacturers' and farmers' exemptions and cease all talk about taking the third and fourth pennies off food and drugs. Last year the pressure to raise some kind of statewide taxes came from transportation, chiefly the ailing Regional Transportation Authority. But this year the pressure will come from all three of the state's big spenders: education, transportation and public aid. It will be pressure to raise the income tax, the only kind of tax that can generate the revenue necessary to offset tax cuts, recession and Reaganomics. With no "new money" in sight, the pressure will be intense.

The Taxpayers Federation of Illinois, the nonprofit, nonpartisan statewide organization that monitors taxes, hit the nail on the head with its January newsletter in an article entitled ["Who's Who on the Bandwagon." In the article the federation lists influential special interests who want to raise the income tax — election year or no. And the list reads like a who's who of lobbies: the state superintendent of education; the finance chairman of the RTA: the Illinois State Bar Association; the League of Women Voters of Illinois; the American Federation of State, County and Municipal Employees; the Illinois Farm Bureau and the Chicago Sun-Times.

There is already a lot of moaning about how difficult it is to be a legislator in an election year, and it is likely that lawmakers will be able to withstand the pressure to raise the income tax. But it is not certain. Thompson, with his proposal to raise state liquor taxes, has opened the door of possibility.

Februury 1982/Illinois Issues/5