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Illinois Governor Pat Quinn was re-elected with a platform built on higher tax rates. According to many analysts, it was an improbable win because of the prospect of higher taxes. But to the surprise of many pundits, Governor Quinn was ushered into the office for another term.
The reaction can be understood if one takes a look at the figures. The proposed income tax hike amounted to a significant increase from 3% to 5.25%. In addition, the state would also impose a tax increase in personal property tax. As a result, the corporate tax rate would increase to 10.9%. It was a major upgrade and a burden to many businessmen.
The expected and unexpected outcome of the proposed tax increase was to initiate a chain-reaction of events that forced big businesses to search for a place to relocate. In other words, Illinois could no longer be considered as a practical place to conduct business. It triggered a panic reaction from the governor, and he offered tax breaks for companies like Motorola, Sears, and Caterpillar.
However, medium-scale enterprises were unable to avail of multi-million dollar tax breaks enjoyed by previously mentioned conglomerates. The tax problems prompted many to offer solutions to the burgeoning budget deficit of the state, and some said that it could be solved not by higher tax rates but reduction in expenses.
The articles offered a good case study of macroeconomics. Roger Leroy Miller’s book provided a clear discussion of macroeconomics because it is one of the means to study the economy of a state or a nation.
In this particular case, the macroeconomic consideration for the state of Illinois examines the impact of the new tax laws not only on the giant corporations that can be found in the state but also on the economy of neighboring states. In addition, a macroeconomic view of the tax issue enables the analysts to see the cause and effect of certain policies. In other words, the macroeconomic view considers the wide-range effect on an area not just an individual.
It must be pointed out that when Governor Quinn increased the tax rate, he also considered the macroeconomic impact of his decisions. Although the tax hike could be seen as an additional burden to the families which saw their tax bill increase significantly, the positive impact of the said move should not be discounted.
Governor Quinn made the argument that this move could narrow down the budget deficit and provide a better future for everyone. On the other hand, the neighboring states began to entice corporations to relocate. Viewed from a macroeconomic perspective, this means that unemployment rate in Illinois will skyrocket if Governor Quinn cannot stop the exodus from happening.
The proposed tax hike was a reaction to the problem of budget deficit that threatened to derail the state of Illinois. The current figures indicated that Illinois could not pay 40% of needed expenditures. In other words, there was no way to generate $15 billion. If this amount were not in the government coffers, then there would be no money to pay for pension and healthcare expenses.
It was a devastating prospect for the workers who diligently toiled for decades in anticipation of an idyllic retirement period. It was also a nightmare for those who depended on the state for employment benefits and healthcare. The public school system would be affected and other services that the government had to support.
As a result, Governor Quinn was forced to increase the tax rate. The people acceded to his request because he made it clear that there was no other way to solve the problem. The people voted for Quinn because he convinced them that he could solve the problems that buffeted the economy of the state of Illinois.
The main component of the campaign promise was to force giant corporations to fork out more taxes. It was a proposition that was easy to understand. Big profits could be translated to more tax money and, therefore, could increase the funds of the state. Unfortunately, the plan backfired when corporations like Caterpillar and Motorola threatened to relocate to another state where the tax laws were not as crippling.
When Governor Quinn began to offer tax breaks, the average tax payer began to recoil in dismay and unbelief. It came to a point when an expert weighed in and said that the decision of Governor Quinn to appease big businessmen with tax breaks was not only disturbing but could also create a dangerous precedent that could significantly erode public confidence. It could even create a major financial crisis in the said state.
Solutions from Taxpayers’ Point of View
There were two major groups of tax payers. The first group was comprised of employees and entrepreneurs. The second group consisted of the multinational companies like Caterpillar and Motorola. From the perspective of the first group, the solution to the problem was to increase the taxes imposed on big corporations. They also proposed to lessen expenditures. A specific suggestion was to reduce the amount of money that the state committed to pay retirees.
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The second group, on the other hand, offered a one-sided solution to the problem. The solution came in the form of tax breaks. In other words, they were amenable to the idea of raising the tax rates, but when it came to the giant corporations, the amount that they had to pay was covered with the millions of dollars in tax breaks given by the state.
Solutions from Selected Officials
The solution provided by Governor Quinn was to raise the income tax of the workers and to increase corporate tax. But at the same time, he turned around to offer a tax break for big business groups like Motorola and Caterpillar.
It should be made clear that government officials agreed with the proposal to cut government spending. As a result, the state legislature proposed a pension-reform bill. The purpose of the said bill was to reduce the commitment of the government to future retirees. Thus, the newly hired workers are not going to enjoy the same type of benefits received by present day retirees.
The budget deficit forced Governor Quinn and the state legislature to increase the income and corporate taxes. The campaign promise was anchored on the idea that giant corporations located in Illinois would help shoulder the burden.
But when the new tax rate was announced, big corporations threatened to relocate, and this prompted another impulsive reaction from Governor Quinn. He offered tax breaks for these corporations. The people were dismayed with this new development and suggested other solutions that could help solve the tax problems faced by the state.