You are insolvent when the money you owe (your liabilities) are more than the money you have (your assets). Illinois has been in desperate financial trouble for some time; this won’t be news to readers of this blog.
Earlier this year on a party-line vote Democrats forced through a major tax increase: corporate income tax went up from 4.8% to 7% and personal income tax went from 3% to 5%. So would increasing revenue end the problems for Illinois?
No. Illinois pensions remain underfunded in the billions. The optimistic forecast is $54 billion; the pessimistic forecast is $80 billion. I think we can all agree it’s a lot.
This past week Senator Mark Kirk (R-IL) asked Federal Reserve Chairman Ben Bernanke if the Fed was watching Illinois and California; Mr. Bernanke said they are being watched.
Meanwhile, President Obama is demanding higher taxes for a debt ceiling deal. I’ll be as blunt as I can: The cause of the problem is government spending; the solution is cutting government spending. If spending is not cut, there is no long-term solution.
Of course, we’re dealing with Washington, so we’ll see what happens. Since Democrats control Springfield (Illinois), they chose the tax increase route. So far, Illinois remains in deep trouble.
This is sheer lunacy! Illinois increased taxes 6 months ago; this was preceeded by 40+ years of severe undertaxation and, as a direct consequence, underfunding of its pensions. This is like running up a huge debt over many decades and, 6 months into finally living within your means, complaining that your debts have not yet appreciably shrunk. Yes, it will take a lot longer for the state to make up for its past underfunding, but it will eventually happen!