While “Occupy Wall Street” cries out over the greed of big corporatism, many Americans have totally ignored the greed and unrestrained selfishness of big government. Federal, state, and local governments lived high off the hog from 2004 to 2008 as government revenues hit all-time highs. Governments spent massive amounts of money, bloated their payrolls and pensions further, and make increasingly absurd promises that they could not keep.
Now, these governments are under constant crunches, fighting with unions over layoffs, or (in liberal states) raising taxes while still increasing their spending. Illinois represents a prime example of fiscal madness. At the height of their financial crisis, Illinois owed $15 billion in back payments. Several local government entities, including schools, were not receiving monies promised by the state.
In an effort to increase revenue and decrease their debt, the state increased their income taxes by 2/3rds. The income tax was increased from 3% of income to 5%. Unfortunately, that increase only covered the increase in the state’s pension plans. Currently, the state is on track to be $8 billion short by the end of this fiscal year (June 30). The state is now exploring options (like issuing bonds) that it found unreasonable when the taxes were raised.
In Harrisburg, Pennsylvania, the municipal government has declared bankruptcy. There’s no indication of what will happen in Harrisburg as a result of this. The likelihood will be that investors of Harrisburg debt will have to take a massive haircut and the residents will witness a decline in the quality of services the city provides at an increased cost.
The same will probably occur in Illinois. Citizens, who pay taxes for state funded programs, will find themselves paying increased property taxes to fund services the state promised to pay, but the county is left holding the bill for. Essentially, taxpayers will find themselves being taxed twice for the same (or similar) state funded services.
Next Monday, I’m going to present a bold solution to state funding crisis using Illinois as an example.