Illinois Raises Income Tax Rate 66 Percent

That states are nearly broke and are now reacting. The news Illinois is raising its income tax rate 66 percent is fairly astounding to say the least, but is a reflection of things to come.

66 percent increase. That is huge regardless of what you are talking about. Seriously. Can you name anything where a 66 percent increase wouldn’t be astounding? Well, the news Illinois is raising its income tax rate by this percentage is pretty astounding. Alas, it is needed and hardly a surprise.

The states are in trouble. This should not be news. They face huge shortfalls in tax revenue, shortfalls they simply can’t meet by cutting spending. Why don’t they just borrow like the federal government does? States are legally barred from doing so, which means they need to come up with the money now. It is kind of like me around tax deadline time!

Illinois also happens to be one of the states in the worst possible shape. It is customarily listed in media reports as perhaps the biggest deadbeat state in the nation. It is as much as a year behind on payments to hospitals, agencies and vendors. There simply isn’t money to pay the deficit, which this year is estimated to be roughly $15 billion. The new tax increase will raise the income tax from three to five percent and raise roughly another $6.8 billion in tax revenues. As you can see, this will still leave a tax shortfall.

You might have the urge to snicker at Illinois given its financial mess. Don’t. Most states are having similar problems with some, such as California, carrying even more debt. The problem is politicians have spent money like the economy was never going to slow down. We all know that was a false assumption and now the bill is coming due. The next step will be the pensions of government workers, which are inevitably going to be cut at some point.