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Letter: Retired Teacher's Solutions for Illinois Pension Crisis

Fix the unfair income tax structure, increase the number of services taxed.

I am a retired teacher with a vested interest in protecting the integrity of all publicly funded pensions. I am also extremely frustrated that there has been so little consideration of the real underlying problems our state faces: an unfair state income tax structure, an unwillingness to accept reality with regard to a sales tax on services, and an unrealistic repayment schedule for our pension debt.

Illinois is one of only seven states in the nation that employs a flat tax and, until the recently enacted temporary increase at 3 percent for individuals, was dead last in the rate imposed. Even now, at 5 percent (until 2015), we are not the most highly taxed of this group. A flat tax is inherently unfair: 83 percent of states with an income tax and even the federal government have chosen a graduated income tax as the most fair way to tax.

As quoted by Joe Cahill in Crain’s this past July, “former Federal Reserve Chairman Paul Volcker blamed Illinois’ staggering deficits in part on a ‘narrow tax base.’ As the service sector grew during the past several decades, most states extended sales taxes to a range of consumer services … . Illinois taxes just 17 services, fewer than all but three other states … well below the national average of 56. Neighboring Iowa, by contrast, taxes 94 services. It is estimated that taxing consumer services could provide an additional $4 billion annually, enough to nearly cover our current $5 billion-plus backlog of unpaid bills.”

And, finally, let’s consider the repayment schedule. This is a self-imposed, overly ambitious, unrealistic schedule. Once we address the revenue side of the equation, it would make sense to refinance our debt into a manageable and reasonable program of debt repayment.

Pension crisis solved!

—Dianne McGuire

Deke January 07, 2013 at 06:41 PM
I suppose one should not be surprised that the author of this letter, who chairs the Naperville Township Democratic Party, would propose burdening the people of Illinois with yet another tax. The author mentions Joe Cahill's July 2012 article in Crain's in which he floated essentially the same proposal (more taxes on services), but even he acknowledged that expanding taxes in this fashion would result in an "economic blow" to the state. Illinois is already ranked 48th out of 50 states in terms of economic outlook. The Illinois economy is limping along as it is -- do we really need to inflict the final bullet by increasing state taxes AGAIN? Does it ever occur to people of the author's ilk that we need to address SPENDING if there is to be any hope of returning Illinois to a reasonably sound economy? Adding to the existing tax burden will only further impede economic growth and drive more individuals and business out of Illinois.
David January 07, 2013 at 07:04 PM
I'm guessing this letter will start a firestorm. Here is my 2 cents... It is not surprising that one of the 5%ers (someone who is getting a public pension) wants other 95% of us to pay more to fund their pension. It is also not fair. Given the choice of raising taxes to fund pensions (as they currently are) or the state defaulting on pension debt - I would choose they default on pension debt. Any solution to the pension crisis will NEED to include public employees contributing more, and benefits being reduced. Didn't you notice we just raised taxes from 3% to 5%, and it didn't make a dent in the unfunded pension liability? If you work for 30 years, you can't expect the taxpayers to pay you for 60 years (30 years working + 30 years retirement) with yearly raises and paid health care. As we are seeing now, it is not a sustainable system.
bobo January 07, 2013 at 07:31 PM
This state is the most corrupt, greedy,criminal,worst run in the nation !!! Many politicians here only care about their own selfish pay and benefits. Lets let it all default and start over ( bankruptcy) Any private sector business that does not budget and balance properly goes belly-up. Makes huge reform's, and decreases the tax burden on hard working Americans, that over the last decade all sacrificed (pension reform, medical increases, work to 65, work rules, etc.) is how you run a business. No more kicking the can down the road, and hope our economy will come back like the 80's-90's. Forget it . This is the new America, and we need leaders to stand up and do their fical responsibilty and show Illinois how to run a business !!!
Peggy Suratt January 07, 2013 at 07:41 PM
as a teacher, i have to admit that I am embarrassed by this letter. our state is hemorrhaging cash, businesses are fleeing to the borders, retirees are either moving permanently or using their vacation home as their residence state (such as florida, nevada, or texas; all states with no income tax). and along comes some madigan pawn who thinks that more taxes on more people/vocations is going to solve the problem. when you read garbage like this, and you realize that these are/were some of the people in charge of "educating" our children, it kind of makes you wonder.
Bob Frye January 08, 2013 at 12:17 AM
I'll jump on the bandwagon here as well and say: No surprise the author of the letter wants the rest of us to pay more, rather than even considering the possibility of taking a little less.
Wire Points January 08, 2013 at 03:21 AM
Ms. McGuire, you are dead wrong and I hope you will reconsider the math behind your claims. A progressive income tax and expansion of the sales tax will hardly dent the problem, raising maybe another $3B per year--assuming the tax base is not crippled. The real pension problem is more like twice the state's official deficit number of $96B according to a long list of independent experts. That Paul Volker report you mentioned, for example, says that your teachers' pension has only 18$ of the assets it really needs, not the 39% claimed by it and the state. The problem now cannot be solved by higher taxes. Defined benefit plans are hopelessly poisoned, the real numbers are overwhelming and Illinois is in denial -- especially the teachers, unfortunately. We have documented the real numbers and www.wirepoints.com and I hope you will consider them.
Dan January 08, 2013 at 03:33 AM
If Illinois is to take steps towards a "fairer" income tax I'm sure the letter writer would understand the first step should be to follow lead of the many other states that tax pension income. I'm yet to have someone explain to me why it is "fair" to tax a person that is currently working but not tax a person that has the same level of pension income? In many cases the person that is currently working to earn say $50,000 has less disposable income than the individual that is retired and receiving $50,000 in pension income. By the time one is retired it is likely thier house is payed off , the kids are out of the house,there is the ability to downsize and work related expenses like commuting are in the past. Closing the tax loop hole that is allowing individuals to bypass paying taxes on millions of dollars of income should be the first change to bring about a "fairer" state income tax.
NancyC January 09, 2013 at 05:41 PM
The retirement age for public employees, including teachers is too way to low as are their contributions to it. They should pay more and work till later in life like the private sector-who are held to a much higher standard of accountability. We in this household are self-employed. There is no one but us to provide for our retirement income and we pray that more individuals will take responsibility for their own future too - no matter how that has to happen for them-working more years, and contributing more from their own earnings.
Mary Ann Erbach January 10, 2013 at 02:07 AM
I would suggest you home school.
rick gerali January 31, 2013 at 09:42 PM
What teachers, politicians and other public pension receipients need to realize is it's better to get a piece of something as opposed to a promise which turns out to be nothing. Public employees have worked for a benefit and hopefully they receive that benefit. But a defined benefit that isn't capable of being funded is not a defined benefit, it is an illusion. The system is broken and needs a permanent fix that does not saddle future generatiions with debt or take more from those currently on fixed incomes.
Sgt Patterson February 05, 2013 at 05:53 PM
This person is not realistic. I just researched the average pay for an Illinois State Trooper; It is 70,000 dollars. I am in Law Enforcement in Virginia and I am A patrol supervisor (Sergeant) and I don't make anything close to that. With overtime I made 59,800 & that is with thirteen years experience. 70 grand for an average cop? That is why we are going to be forced to bail out the state of Illinois. Sgt Patterson

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