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The Illinois debt problem has many reasons. This was revealed by a recent report on financial health of states coauthored by former Federal Reserve Board Chairman Paul Volcker. As highlighted in the report, the deficit problem is due in part on a narrow tax base. The tax base is narrow because nearly half the economy is exempt from sales tax.
Since the second part of the twentieth century, the service sector has become the largest segment of the national. Economy. This segment has also seen the quickest expansion. From about sixty percent its share has expanded to almost eighty percent. Illinois is not excluded from this reality.
In response to this change most states extended sales taxes to a range of consumer services. By contrast, Illinois, still limits it to tangible goods, almost exclusively. The state taxes 17 services. This is fewer than only three other states. It is also below the national average of 56. Iowa, which is situated next door, taxes 94 services.
The Commission on Government Forecasting and Accountability research has indicated taxing services would increase annual revenue by about 4 billion dollars. This figure would go a significant way towards paying for about fifty percent of the current backlog of unpaid, officially recognized, bills. There is a greater backlog if presently unapproved charges are to be included. By September 2012, the official amount was five billion dollars.
In the past, the reason mostly goods were taxed was because services made up a much smaller slice of the economy. This was way back when this tax regime was adopted in the 1930s. Since then the lesser segment has expanded from less than one third in 1977 to almost half of the gross state product. By increasing the cover of the taxing regime, the regime would reflect the prevailing economic reality.
Like other states, the state has a major unfunded pension problem. Needless to say, the government has also played its part in this crisis. As indicated by the Volker report, years of covering liability with borrowed money by issuing pension bonds has exacerbated the indebtedness. The retirement system has the lowest percentage of assets needed to cover promised obligations of any state, according to data compiled by Bloomberg in 2012. A factor left out of general discussion of this issue is that Illinois has the most number of local governments in the country. Unsurprisingly, Pennsylvania the next most fragmented state is home to a quarter of U. S. Public pension plans. Yet, when the word pensions is used there is no discussion for the need for local government reform.
Meanwhile, drowning in deficits, there is now a deliberate policy of not paying bills for months at a time. This has imposed hardship on the parties helping the government carry out routine tasks. What was once intended to be a temporary tool has become a regular part of budget management. In return, it has forced parties owed the funds to borrow, cut services and reduce jobs.
Some investors are making out in this mess. This is because the borrowings have become a popular investment for those will to seek riskier investments for a greater return. The Fed practice of keeping interest rates low has reduced borrowing costs for governments. As a result, the state continues to borrow more while it is caught in the grip of indebtedness. The Illinois debt crisis, it appears, may get much worse before it gets any better.
Since the second part of the twentieth century, the service sector has become the largest segment of the national. Economy. This segment has also seen the quickest expansion. From about sixty percent its share has expanded to almost eighty percent. Illinois is not excluded from this reality.
In response to this change most states extended sales taxes to a range of consumer services. By contrast, Illinois, still limits it to tangible goods, almost exclusively. The state taxes 17 services. This is fewer than only three other states. It is also below the national average of 56. Iowa, which is situated next door, taxes 94 services.
The Commission on Government Forecasting and Accountability research has indicated taxing services would increase annual revenue by about 4 billion dollars. This figure would go a significant way towards paying for about fifty percent of the current backlog of unpaid, officially recognized, bills. There is a greater backlog if presently unapproved charges are to be included. By September 2012, the official amount was five billion dollars.
In the past, the reason mostly goods were taxed was because services made up a much smaller slice of the economy. This was way back when this tax regime was adopted in the 1930s. Since then the lesser segment has expanded from less than one third in 1977 to almost half of the gross state product. By increasing the cover of the taxing regime, the regime would reflect the prevailing economic reality.
Like other states, the state has a major unfunded pension problem. Needless to say, the government has also played its part in this crisis. As indicated by the Volker report, years of covering liability with borrowed money by issuing pension bonds has exacerbated the indebtedness. The retirement system has the lowest percentage of assets needed to cover promised obligations of any state, according to data compiled by Bloomberg in 2012. A factor left out of general discussion of this issue is that Illinois has the most number of local governments in the country. Unsurprisingly, Pennsylvania the next most fragmented state is home to a quarter of U. S. Public pension plans. Yet, when the word pensions is used there is no discussion for the need for local government reform.
Meanwhile, drowning in deficits, there is now a deliberate policy of not paying bills for months at a time. This has imposed hardship on the parties helping the government carry out routine tasks. What was once intended to be a temporary tool has become a regular part of budget management. In return, it has forced parties owed the funds to borrow, cut services and reduce jobs.
Some investors are making out in this mess. This is because the borrowings have become a popular investment for those will to seek riskier investments for a greater return. The Fed practice of keeping interest rates low has reduced borrowing costs for governments. As a result, the state continues to borrow more while it is caught in the grip of indebtedness. The Illinois debt crisis, it appears, may get much worse before it gets any better.
The Illinois debt problem has many reasons. This was revealed by a recent report on financial health of states coauthored by former Federal Reserve Board Chairman Paul Volcker. As highlighted in the report, the deficit problem is due in part on a narrow tax base. The tax base is narrow because nearly half the economy is exempt from sales tax.
Since the second part of the twentieth century, the service sector has become the largest segment of the national. Economy. This segment has also seen the quickest expansion. From about sixty percent its share has expanded to almost eighty percent. Illinois is not excluded from this reality.
In response to this change most states extended sales taxes to a range of consumer services. By contrast, Illinois, still limits it to tangible goods, almost exclusively. The state taxes 17 services. This is fewer than only three other states. It is also below the national average of 56. Iowa, which is situated next door, taxes 94 services.
The Commission on Government Forecasting and Accountability research has indicated taxing services would increase annual revenue by about 4 billion dollars. This figure would go a significant way towards paying for about fifty percent of the current backlog of unpaid, officially recognized, bills. There is a greater backlog if presently unapproved charges are to be included. By September 2012, the official amount was five billion dollars.
In the past, the reason mostly goods were taxed was because services made up a much smaller slice of the economy. This was way back when this tax regime was adopted in the 1930s. Since then the lesser segment has expanded from less than one third in 1977 to almost half of the gross state product. By increasing the cover of the taxing regime, the regime would reflect the prevailing economic reality.
Like other states, the state has a major unfunded pension problem. Needless to say, the government has also played its part in this crisis. As indicated by the Volker report, years of covering liability with borrowed money by issuing pension bonds has exacerbated the indebtedness. The retirement system has the lowest percentage of assets needed to cover promised obligations of any state, according to data compiled by Bloomberg in 2012. A factor left out of general discussion of this issue is that Illinois has the most number of local governments in the country. Unsurprisingly, Pennsylvania the next most fragmented state is home to a quarter of U. S. Public pension plans. Yet, when the word pensions is used there is no discussion for the need for local government reform.
Meanwhile, drowning in deficits, there is now a deliberate policy of not paying bills for months at a time. This has imposed hardship on the parties helping the government carry out routine tasks. What was once intended to be a temporary tool has become a regular part of budget management. In return, it has forced parties owed the funds to borrow, cut services and reduce jobs.
Some investors are making out in this mess. This is because the borrowings have become a popular investment for those will to seek riskier investments for a greater return. The Fed practice of keeping interest rates low has reduced borrowing costs for governments. As a result, the state continues to borrow more while it is caught in the grip of indebtedness. The Illinois debt crisis, it appears, may get much worse before it gets any better.
Since the second part of the twentieth century, the service sector has become the largest segment of the national. Economy. This segment has also seen the quickest expansion. From about sixty percent its share has expanded to almost eighty percent. Illinois is not excluded from this reality.
In response to this change most states extended sales taxes to a range of consumer services. By contrast, Illinois, still limits it to tangible goods, almost exclusively. The state taxes 17 services. This is fewer than only three other states. It is also below the national average of 56. Iowa, which is situated next door, taxes 94 services.
The Commission on Government Forecasting and Accountability research has indicated taxing services would increase annual revenue by about 4 billion dollars. This figure would go a significant way towards paying for about fifty percent of the current backlog of unpaid, officially recognized, bills. There is a greater backlog if presently unapproved charges are to be included. By September 2012, the official amount was five billion dollars.
In the past, the reason mostly goods were taxed was because services made up a much smaller slice of the economy. This was way back when this tax regime was adopted in the 1930s. Since then the lesser segment has expanded from less than one third in 1977 to almost half of the gross state product. By increasing the cover of the taxing regime, the regime would reflect the prevailing economic reality.
Like other states, the state has a major unfunded pension problem. Needless to say, the government has also played its part in this crisis. As indicated by the Volker report, years of covering liability with borrowed money by issuing pension bonds has exacerbated the indebtedness. The retirement system has the lowest percentage of assets needed to cover promised obligations of any state, according to data compiled by Bloomberg in 2012. A factor left out of general discussion of this issue is that Illinois has the most number of local governments in the country. Unsurprisingly, Pennsylvania the next most fragmented state is home to a quarter of U. S. Public pension plans. Yet, when the word pensions is used there is no discussion for the need for local government reform.
Meanwhile, drowning in deficits, there is now a deliberate policy of not paying bills for months at a time. This has imposed hardship on the parties helping the government carry out routine tasks. What was once intended to be a temporary tool has become a regular part of budget management. In return, it has forced parties owed the funds to borrow, cut services and reduce jobs.
Some investors are making out in this mess. This is because the borrowings have become a popular investment for those will to seek riskier investments for a greater return. The Fed practice of keeping interest rates low has reduced borrowing costs for governments. As a result, the state continues to borrow more while it is caught in the grip of indebtedness. The Illinois debt crisis, it appears, may get much worse before it gets any better.
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