Civic Federation recommends taxing services, retirement to stabilize state

Feb. 09--Ahead of Gov. Bruce Rauner's budget address next week, the Civic Federation is again calling for taxing some retirement income and extending the state sales tax to some services as part of its proposal to stabilize state finances.

The Civic Federation, which is a watchdog over state finances, said the budget passed last summer to end the two-year budget impasse meant the state "was no longer careening toward unprecedented financial disaster."

"However, our elected officials again relied on shaky financial practices for short-term relief, such as counting on dubious one-time revenues and repeatedly kicking the pension can down the road," said Federation president Laurence Msall in a statement. "Such actions only make achieving sound financial footing more difficult."

The Civic Federation compiled a list of 11 steps it believes the state should follow to reestablish the state's financial health. Number one on the list is limiting annual spending growth to 2.1 percent for the next five years at a minimum. The group recommended other cost control measures like cutting the interest rate the state pays on overdue bills, consolidating government units and creating a commission to explore consolidating governance of state universities.

Other recommendations will be more difficult, Msall acknowledged. The organization said the state should impose the income tax on the same retirement income that is taxed at the federal level. For example, there is a federal income tax on 401(k) distributions, but Illinois does not tax them. Imposing that tax has been a third rail in Illinois politics.

Also, the report calls for a constitutional amendment to be placed on the ballot "to clarify the pension protection clause." That clause prevents lawmakers from enacting cuts to pensions of current public employees.

The report recommends extending the sales tax to 14 services that are also taxed in Wisconsin, such as landscaping and internet services.

The federation also is calling for a new capital construction bill that would be financed by an increase in the gasoline tax.

Rauner will deliver his budget speech on Wednesday.

Contact Doug Finke: doug.finke@sj-r.com, 788-1527, twitter.com/dougfinkesjr.

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