Wednesday, March 7, 2007 10:18 PM CST
Blagojevich offers big plans backed by big tax hikes
By CHRISTOPHER WILLS, Associated Press Writer
SPRINGFIELD, Ill. (AP) -- Gov. Rod Blagojevich proposed the biggest tax increase in Illinois history Wednesday, portraying it as both a matter of fairness to average Illinoisans and the key to meeting the state's moral obligations.
In his fifth State of the State address, Blagojevich said the $7 billion in new business taxes should be used to provide health care to the uninsured and pump more money into public schools.
The state could cover 1.4 million uninsured adults, he said, while also providing a 23 percent increase in education spending next year alone.
But critics countered that the taxes, although they apply to businesses, would translate into higher prices for consumers and a blow to the economy.
Blagojevich argued that Illinois businesses don't pay their fair share of taxes, so taxing them more heavily would improve state services and ease the burden on regular people.
"The moral imperative is this: While the middle class pays more and huge corporations just walk, a child pays the price with increasingly crowded classrooms, the family in need of health care pays a price in health care they can't afford ..." he said in a 33-minute address that combined his annual State of the State speech and budget presentation.
The Chicago Democrat also proposed letting a private company take over the state lottery and borrowing billions of dollars. Those steps would generate about $26 billion that would be used to shore up the state's shaky retirement systems.
Business groups immediately condemned his proposals, particularly the taxes, as certain to drive up consumer prices and discourage companies from doing business in Illinois.
"This is nothing more than a hidden tax that will be passed through to consumers," said Doug Whitley, head of the Illinois State Chamber of Commerce. "Illinois continues to send a message that we are not business friendly."
The legislative response was mixed.
Senate President Emil Jones, D-Chicago, embraced the governor's proposals even though he had been pushing for a "tax swap" that would increase school funding by raising income taxes and lowering property taxes.
Other Democrats showed little enthusiasm during the speech, applauding health care and education but falling silent at any mention of tax increases.
House Speaker Michael Madigan, D-Chicago, declined to answer questions afterward. A spokesman said Madigan wants to see more detail before commenting.
Some downstate Democrats, who could be key to passing the plan, questioned whether it makes sense to expand health care and education if the state can't afford to do it without a massive tax increase.
"It will be probably the most contentious budget I've seen in the last 15 years," said Rep. Frank Mautino, D-Spring Valley.
Blagojevich said little about the surge in electric prices that has angered so many consumers. He said he's eager to sign legislation protecting consumers but didn't spell out whether that means rolling back rates or phasing in the increases.
In all, Blagojevich's budget for the fiscal year that begins July 1 calls for a record $60.1 billion in spending, a 9.5 percent increase over the current year.
He called on lawmakers to support "Illinois Covered," his $2.1 billion plan to offer free coverage to the poor and subsidize coverage for the working poor and middle class. The administration says the plan would cost about $280 million the first year.
Blagojevich also proposed increasing education spending by $1.5 billion, a jump of about 23 percent. That would be accompanied by a $1.5 billion program to help districts build new schools and repair old ones.
Blagojevich would pay for his proposals with two new business taxes.
A "gross receipts tax" would produce about $6 billion a year by taxing business transactions -- a supplier selling raw material to a manufacturer, for instance, or a doctor delivering medical care.
The governor's administration says the tax would help capture money from the state's growing service sector. Service businesses would pay a higher rate than manufacturers and other traditional businesses, while small companies would be exempt altogether.
If a gross receipts tax is approved, the state's corporate income tax would be phased out.
The other new tax would apply to companies that don't offer health insurance to employees or spend very little on coverage. The 3 percent payroll tax would generate about $1 billion a year.
The taxes amount to the biggest increase in Illinois history -- seven times larger than the first full year of the state income tax, back in 1971.
Blagojevich won re-election partly because of his promise not to raise taxes. His aides said this budget does not break that promise because the governor specified that his pledge applied to the income and sales tax. In addition, his proposed increases apply to businesses, not individuals.
But experts disagreed.
"In effect, you're going to be socking it to low- and middle-income families," said Ralph Martire, executive director of the Center for Tax and Budget Accountability.
Blagojevich also proposed a major attack on the state's problem of retirement systems that need more money to pay future benefits.
State workers, university employees, downstate teachers and more have been promised billions of dollars worth of benefits, but the state hasn't put aside nearly enough money to pay for them. The gap, known as "unfunded liability," topped $42 billion at the end of the last budget year -- the worst mark in the country.
Ultimately, the state must pay. That means closing that gap will eat up a bigger and bigger share of state revenues. The last two years, Blagojevich and lawmakers simply cut back pension payments rather than pay the required amounts.
Now Blagojevich proposes privatizing the lottery, something he predicts will bring the state $10 billion. He also wants to borrow $16 billion at lower interest rates and pay off part of the pension debt, which is growing at an 8.5 percent rate.
The $26 billion from those two actions would make a huge dent in the pension gap, saving the state money and reducing the drain on scarce dollars, he said.
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 Seth Perlman (AP)
Illinois Gov. Rod Blagojevich speaks with the Republican side of the House chambers after delivering the State of the State address to a joint session of the General Assembly at the Illinois State Capitol in Springfield Wednesday. Looking on is Rep. Elizabeth Coulson, R-Glenview, right.
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Stephen wrote on Jul 17, 2006 8:22 AM: