Taxes

The Civic Federation Proposes Less Government Spending, More Taxes To Tackle Illinois’ $6.4 Billion In Unpaid Bills

Regular Survival And Prosperity readers shouldn’t be surprised to hear the following from The Civic Federation, an independent, non-partisan government research organization that provides analysis and recommendations on government finance issues for the Chicago region and State of Illinois. From a press release last Thursday:

In a report released today, the Civic Federation’s Institute for Illinois’ Fiscal Sustainability proposes a comprehensive five-year plan that responds to the dire reality of Illinois’ financial condition with painful, but necessary recommendations. The plan immediately stabilizes the State’s operating budget and establishes a sustainable long-term financial plan that would pay off Illinois’ unpaid bill backlog of approximately $6.4 billion. The full 56-page report is available here.

Nearly five years after the official end of the national economic downturn, Illinois is still burdened with billions of dollars in unpaid bills. The State’s five pension systems, underfunded for decades and further weakened by recession-driven investment losses, are consuming a growing share of annual operating revenues. Temporary income tax rate increases enacted in 2011 helped the State cope with these massive problems, but the higher rates began to phase out on January 1, 2015 and the State’s income tax revenues are expected to plummet by $5.2 billion between FY2014 and FY2016.

“The incomplete FY2015 budget resulted in a greater deterioration of Illinois’ finances and made the necessary actions to fix this crisis even more painful,” said Laurence Msall, president of the Civic Federation. “Illinois cannot afford such a steep rollback of its tax rates without eliminating entire areas of State services or completely restructuring the government.”

After examining the effectiveness of multiple budget scenarios based on the fundamental long-term financial goals detailed below, the Federation proposes the following recommendations as part of a comprehensive five-year plan…

In a nutshell, The Civic Federation proposes less government spending and more taxes for the State of Illinois. From that press release:

1. Fix Fiscal Cliff in FY2015: Rather than sharply dropping income tax rates by 25% in one year, the State should retroactively increase the income tax rate to 4.25% for individuals and 6.0% for corporations as of January 1, 2015. The State could then provide additional tax relief by rolling back the rates on January 1, 2018 to 4.0% for individuals and 5.6% for corporations.
2. Control State Spending: The State should restrict discretionary spending growth from the 2.7% level shown in its three-year projections to 2.0%, closer to the rate of inflation. This could reduce total State spending by $1.3 billion over five years.
3. Broaden the Income Tax Base to Include Some Retirement Income: Out of the 41 states that impose an income tax, Illinois is one of only three that exempt all pension income. To create greater equity among taxpayers, the State’s income tax base should include non-Social Security retirement income from individuals with a total income of more than $50,000.
4. Expand Sales Tax Base to Include Services: Illinois should expand its sales tax base to include a list of 32 service taxes proposed by Governor Rauner. Due to the complexity of sourcing rules and collections for new businesses that are not currently required to collect sales taxes, it is estimated this expansion could take up to two fiscal years to fully implement.
5. Temporarily Eliminate Sales Tax Exemption for Food and Non-Prescription Drugs: To provide much-needed immediate revenue, the State should temporarily eliminate the tax exemption for food and non-prescription drugs. The State should apply the full 6.25% sales tax rate to food and over-the-counter drug purchases through FY2019 and then reinstate the exemption in FY2020 after the service tax expansion is fully implemented and the State’s backlog of unpaid bills is eliminated.
6. Expand the Earned Income Tax Credit to Provide Assistance to Low Income Residents: To help soften the impact of the State’s fiscal crisis on low income residents, the Civic Federation proposes an increase in the State’s Earned Income Tax Credit from 10% of the federal credit to 15% of the federal credit by FY2018…

At this point, I wholeheartedly believe it’s just a matter of time now before a number of the above are implemented either willingly (legislatively) or forcefully (“financial reckoning day”) in the “Land of Lincoln” down the road.

As such, it might be wise for Illinoisans to start preparing (if they haven’t done so already) for an impending hit to household finances and elsewhere.

You can read the entire press release and obtain that report on The Civic Federation’s website here.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Illinois Governor Bruce Rauner To Push Drastic Spending Cuts, Sales Tax Hike In Near Future?

Some local news outlets have been giving new Illinois Governor Bruce Rauner a hard time lately, claiming he’s still in “campaign mode” and not providing much in the way of tackling the state’s economic ills.

But yesterday, Illinoisans got a glimpse of one potential measure the Winnetka businessman may turn to for improving the state’s finances. Jessie Hellmann and Ray Long reported on the Chicago Tribune website Thursday:

Republican Gov. Bruce Rauner pressed a bit harder Thursday for an expansion of the Illinois sales tax as part of an agenda to right the state’s financial ship.

Using charts and graphs, Rauner explained how surrounding states use broader-based sales taxes than Illinois to take advantage of growing service economies. “We’re not competitive,” Rauner said.

The idea of expanding the state’s sales tax base to include services, such as on auto repairs, dog grooming or haircuts, has been debated in Illinois since the late 1980s. Expansion efforts repeatedly have stalled in the face of heavy resistance, but Rauner outlined how he thinks Illinois is “out of balance” with other states.

“We are not thoughtful about this,” Rauner said, adding that the Illinois sales tax is too high and too narrowly applied.

Expanding the sales tax is one of the few items Rauner repeatedly has mentioned as a part of an unspecific overhaul of the entire tax code, saying Illinois can’t “just nibble around the edges.”

(Editor’s note: Bold added for emphasis)

It’s going to take a whole lot more than a sales tax hike to turn around the state’s economic fortunes. And Governor Rauner knows that.

So what other measures could be on his agenda for the near-term?

Rich Miller discussed the governor’s visit to the University of Chicago on January 22 and wrote on the Crain’s Chicago Business website the following day:

What is crystal clear is that he won’t ask for any more revenues without first making deep and even drastic cuts.

The new governor pointed to flat population growth and flat job growth as the roots of the problem.

Without “booming” growth, he said, Illinois can never dig itself out of the hole it’s in. And Rauner always HAS said that high taxes are a hindrance to growth.

Rauner singled out two items for his chopping block. First up, Medicaid spending.

“When you realize our job growth is flat, how do you pay for it?,” Rauner said of Medicaid. “I want to do that, but that is not sustainable.” Medicaid, which pays for everything from childbirth to nursing home care, consumes a quarter of the state’s operating budget, and despite some real reforms almost two years ago, costs are continuing to rise. And that’s a problem when next fiscal year’s budget deficit is being pegged at a whopping $9 billion.

Rauner also claimed state employees make too much money, saying they earn more than private sector workers (which AFSCME rejects, pointing to a recent University of Illinois study) and are the third-highest paid in the country. The number of state workers is declining, Rauner noted, but payroll costs are still increasing. Their health insurance is based on “low contributions” from workers, but has a high cost. So, while workers aren’t chipping in much, “you’re chipping in a lot,” he told his audience…

(Editor’s note: Bold added for emphasis)

“Deep and even drastic cuts.” “Expansion of the Illinois sales tax.”

It will be interesting to watch how Illinois Democrats- who hold veto-proof supermajorities in both chambers of the Illinois General Assembly- react to such proposals if Governor Rauner goes this route.

This could get ugly real quick…

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Sources:

Hellmann, Jessie and Long, Ray. “Rauner presses for sales tax expansion in U. of I. speech.” Chicago Tribune. 29 Jan. 2015. (http://www.chicagotribune.com/news/local/politics/ct-bruce-rauner-champaign-appearance-met-0130-20150129-story.html). 30 Jan. 2015.

Miller, Rich. “Watch out: Rauner sharpens his cleaver.” Crain’s Chicago Business. 23 Jan. 2015. (http://www.chicagobusiness.com/article/20150123/NEWS02/150129882/watch-out-rauner-sharpens-his-cleaver). 30 Jan. 2015.

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Illinois Debt Crisis Latest: $9 Billion Annual Deficit, $159 Billion In IOUs

Illinois residents are waking up to disturbing news this morning. From the “Press Room” over on the website of the Institute of Government and Public Affairs at the University of Illinois:

Illinois faces $9 billion annual deficit and $159 billion in IOUs

New analysis (PDF) by the Fiscal Futures Project finds no easy fix to Illinois’ chronic fiscal imbalance. Illinois now faces a $9 billion annual deficit that will grow to $14 billion by FY 2026.

“Years of pay-later budgeting has resulted in a massive imbalance between sustainable revenue and spending,” said Richard Dye, co-director of the Fiscal Futures Project. “Like a person in deep credit card debt, the state has been spending more than it can afford, and is covering the gap by issuing IOUs.” The report finds that the state’s IOUs now total $159 billion—more than twice the inflow of revenue in a single year. It’s a monumental problem that will require a long-term fiscal plan that includes tax increases, spending cuts, and economic growth.

The report, Apocalypse Now? The Consequences of Pay-Later Budgeting in Illinois, examines what it would take to balance the budget. The options are limited.

• Bringing back the 2011 tax increase would close only about one-half of the gap projected for the next several years.
The problem cannot be solved with spending cuts alone. Because Illinois can’t cut debt service or pension payments, it would take at least a 20 percent cut of all remaining spending to eliminate the deficit. This includes education, corrections, Medicaid, public safety, transportation, and more.
• Economic growth is also not a cure-all: an increase in the growth rate of personal income by an extra one-half percent every year for 10 years (an optimistic scenario) would only have a modest effect on the deficit.

The report concludes: “Changes in awareness, expectations, and policy are needed to restore fiscal balance in Illinois. Being saddled with paying past years’ bills means that today, Illinoisans must reduce their expectations for the services that they can expect from government and be prepared to pay more for government, now and in the future.”

(Editor’s notes: Bold added for emphasis)

Like I blogged a week ago:

A lot less government services. Much higher fees, fines and taxes.

An outcome I see for Chicago, Cook County, and Illinois residents down the road.

And plenty of Illinoisans wonder why their neighbors are high-tailing it out of the “Land of Lincoln.”

You can read a summary fact sheet or the entire report over on the IGPA website here.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Chicago, Cook County, Illinois Residents: ‘Sacrifice’ Looming

A lot less government services. Much higher fees, fines and taxes.

An outcome I see for Chicago, Cook County, and Illinois residents down the road.

And based on comments made by Cook County Board President Toni Preckwinkle and new Illinois Governor Bruce Rauner yesterday, our destination is in sight. Governor Rauner said in his inaugural speech Monday:

We have an opportunity to accomplish something historic: to fix years of busted budgets and broken government; to forge a path toward long-term prosperity and a brighter future; to make Illinois the kind of state others aspire to become, a national leader in job growth and education quality.

To achieve that will require sacrifice. Sacrifice by all of us- politicians and interests groups, business and labor, those who pay for government and those who depend on government’s services. Each person here today and all those throughout the state will be called upon to share in the sacrifice so that one day we can again share in Illinois’s prosperity. We all must shake up our old ways of thinking…

The 42nd governor added later on in his address:

Illinois is our home- and right now our home is hurting. But home and family are worth sacrificing for… worth fighting for. Together, let’s do the hard work to rebuild our home…

“Sacrifice.” Call me crazy, but something tells me the burden of bailing out the “Land of Lincoln” won’t be falling upon the backs of the rich and powerful.

Cook County Board President Toni Preckwinkle also gave a speech yesterday in which she hinted at county residents having to make future sacrifices. John Byrne reported on the Chicago Tribune website Monday:

Preckwinkle gave a speech to the City Club of Chicago about her first-term achievements and laid out a blueprint for her second four years in office. Asked afterward about the likelihood she will be forced to raise taxes, Preckwinkle said only that it will be “a challenge” to meet the county’s financial obligations.

“We have significant challenges, both around the spike in our debt obligations and our pension obligations, and my charge to our chief financial officer is that he has to do everything he can to be creative in figuring out how to address these problems,” she said…

Preckwinkle crafted a $4 billion budget for 2015 that includes no new taxes, fines or fees. She has warned that the 2016 budget will be far trickier to balance because debt payments will increase and the county could need to come up with $144 million more to pay into the county workers retirement system if she gets the pension fund changes she has asked for from the General Assembly.

“I can’t predict now, because we don’t even have a pension bill, how much it’s going to cost or what it’s going to take, but it’s going to be a real challenge, I’ll say that,” she said Monday.

(Editor’s note: Bold added for emphasis)

Coupled with Chicago’s financial issues, all I can say to Chicago, Cook County, and Illinois residents at this point in time is- better start figuring out a way to cope with less government services and higher fees/fines/taxes from local and state government in the coming years. The politicians can only kick the can down the road so far.

You can read Governor Rauner’s entire inaugural address on the Chicago Sun-Times website here.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Source:

Byrne, John. “Preckwinkle details 2nd-term plans for Cook County.” Chicago Tribune. 12 Jan. 2015. (http://www.chicagotribune.com/news/ct-preckwinkle-second-term-agenda-met-0113-20150112-story.html). 13 Jan. 2015.

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Marc Faber: Young Americans Will Earn Less, Have Less Wealth Than Their Parents

I wrote on Survival And Prosperity a couple years ago:

Back in 2006 when I was working at a suburban fire department, a battalion chief came into my office, saw the local paper on my desk, and asked, “Did you read that piece about how kids these days might be the first generation who won’t be better off than their parents?” I replied, “Yeah, it was depressing.” The fire officer confided, “That stuff scares me. I’m worried they might be right about that.” I’d be concerned too, especially if I were the parent of a couple of young kids like this chief was.

Fast forward almost nine years after that discussion took place. Swiss-born investment advisor/money manager Marc Faber was interviewed by Barron’s last week. The publisher of the monthly investment newsletter The Gloom Boom & Doom Report talked with editor Jack Otter about a number of financial topics, including how younger people in Western societies will be less well-off than their parents. From their exchange:

OTTER: You always find new ways to depress me. And today you told me that for the first time in 200 years of history, we will bequeath to our children less wealth than their parents had.
FABER: Yes. I meant that with respect to Western societies and Japan, where essentially the younger people, today’s generation, will earn less than their parents. And they will have less wealth than their parents, inflation-adjusted, because we will have wealth taxes, we’ll have more estate taxes, and we have essentially declining real median incomes in the Western world and Japan. But the good news is that we have essentially have in the countries that opened up post-breakdown of the socialist, communist ideology- China, Soviet Union, Eastern Europe, and so forth, and India, of course- we have entire generations that will earn much more and have a much better standard of living than their parents had.

On India, “Doctor Doom”- as the financial media likes to call him- thinks that India’s stock market could rise by 15 percent in 2015.


“Dr. Doom Offers 2 Stocks Picks, But Gloomy Outlook”
Barron’s Video

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)

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Potential Blowback From Chicago’s Minimum Wage Hike

In case you haven’t heard, the City of Chicago just approved a minimum wage hike for all workers in the city. From the Mayor’s Press Office on December 2:

Mayor Emanuel, City Council Approve Ordinance to Increase Minimum Wage in Chicago to $13 by 2019

City Council today passed an ordinance that will raise the minimum wage for all Chicago workers to $13 per hour by 2019. This measure, sponsored by Mayor Rahm Emanuel, Alderman Will Burns, Alderman Pat O’Connor and 31 other aldermen, will increase the earnings for approximately 410,000 Chicago workers, inject $860 million into the local economy, and lift 70,000 workers out of poverty…

On December 1, Mayor Emanuel and a group of Aldermen introduced a substitute ordinance based off of Senator Kimberly Lightford’s bill that gets the City of Chicago to a $10 minimum wage in roughly seven months, an $11 minimum wage by 2017, and to a final minimum wage of $13 by 2019, plus inflation increases after 2019.

Personally, I interpret the hike as merely an election-year ploy to help Rahm Emanuel and the siting aldermen in the upcoming February 24, 2015, Municipal General Election in Chicago. Consider the following from Joseph Erbentraut on the Huffington Post website Tuesday:

The fast-tracked plan, one of three wage-increase proposals considered by city officials this week, is backed by Mayor Rahm Emanuel in what some critics say is a political move designed to win favor with left-leaning Chicago voters ahead of the February 2015 mayoral election

(Editor’s note: Bold added for emphasis)

While it’s nice to think a number of Chicago workers will be getting raises, the potential blowback could be significant. And Chicago residents may be on the receiving end. Back on June 22, 2014, I was reading the latest issue of The Sovereign Society’s weekly electronic publication the Sovereign Digest. Jeff Opdyke and Erika Nolan commented on the nationwide push for minimum wage hikes. They noted:

All over the country, unwise politicians are pushing a misguided “living wage” agenda that’s driving minimum wages higher. Seattle, for instance, just recently approved a $15-per-hour minimum, which is already biting the city in the butt in two ways. First, as I and anyone with two brain cells to rub together rightly pointed out, companies are finding that low-level managers now want pay raises, too, to rightly keep their pay commensurately above the people they’re managing. Doh! And other companies are imposing a “living wage tax” on consumers to cover the rising labor costs. As both of those trends spread — and they will — a form of inflation creeps into the system more broadly.

(Editor’s note: Bold added for emphasis)

As the above relates to the “Windy City”- Chicagoans should be prepared to pay higher prices for certain items/services.

There’s one more way Chicago residents may be impacted directly and adversely by the minimum wage hike. Sparing readers the simple economics involved with Tuesday’s action down at City Hall, a number of Chicago business owners- realizing now or later the disadvantage they’re at compared to competitors outside city limits- will be shuttering their stores shortly or down the road- either by choice or not- as a result of this hike.

Shuttered businesses= lost revenue via fees/taxes for the City

Something else to chew on. The country is just about due for an economic recession (against which the government and Fed have mostly run out of “bullets” due to the economic crisis late last decade). Forcing raises on a number of Chicago businesses still smarting from the so-called “Great Recession” could be a death sentence for them.

As for those workers in the city who will supposedly benefit from the minimum wage hike? Regrettably, pink slips could be a real possibility for a number of them.

In summary, there’s a good chance the City of Chicago, Chicago residents, and minimum wage workers in the city are ultimately going to get stung by Tuesday’s political theater. And the pain could be coming sooner than later. Just don’t expect City Hall and their friends in the mainstream media to publicize the debacle if/when it goes down.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Source:

Erbentraut, Joseph. “Chicago City Council Approves Plan For $13 Minimum Wage Despite Opposition.” Huffington Post. 2 Dec. 2014. (http://www.huffingtonpost.com/2014/12/02/chicago-minimum-wage_n_6255436.html). 3 Dec. 2014.

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Chicago’s 2015 Budget Includes Tax And Fee Hikes

Gee, who could’ve anticipated new fee and tax hikes look to be in store for Chicago next year?

From Fran Spielman over on the Chicago Sun-Times website this morning:

[Chicago Mayor Rahm] Emanuel will campaign for re-election on a budget that raises $62.4 million through “targeted” tax hikes and closing “loopholes,” which amounts to the same thing.

People who live, work and play in Chicago will be paying more for everything from parking and vehicle leasing to cable television and stadium skyboxes…

(Editor’s note: Bold added for emphasis)

These individuals have been doing that for a number of years now. Hal Dardick pointed out over on the Chicago Tribune site:

As the Chicago City Council prepares to approve his latest budget Wednesday, Mayor Rahm Emanuel repeatedly has reminded voters that he didn’t raise city property taxes during his first four years in office.

But that doesn’t mean homeowners haven’t had to pay. Under Emanuel, vehicle stickers cost more. Cable TV and phone taxes went up. And water and sewer fees increased significantly…

Taken together, Emanuel’s hikes mean the typical Chicago family will pay about $481 more to the city next year than it did in 2011. That’s the equivalent of a typical Chicago homeowner paying 60 percent more in city property taxes, which are nearly $800 a year for city and library services on a $250,000 home…

(Editor’s note: Bold added for emphasis)

“Nearly $800 a year for city and library services on a $250,000 home”

In the Chicago neighborhood I recently moved out of, I’m not sure if any inhabitable houses at that price range with more than 2 bedrooms/1 bath even exists. So I’m guessing a number of my old neighbors- who already shoulder a significant tax burden for the city- will be somewhat pissed to hear of this “good news” coming out of City Hall.

That being said, it’s not exactly Chicago’s “financial reckoning day” we’re talking about here. But it’s probably not what Chicagoans want to deal with as the holiday season kicks-in.

As for the well-publicized pension crisis going on in the “Windy City,” Spielman added:

By December, 2015, the City Council must decide whether to raise property taxes — or find other new revenues — to fund a state-mandated, $550 million payment to shore up police and fire pension funds.

(Editor’s note: Bold added for emphasis)

So a property tax hike might also be coming down the pipeline.

One more thing. Regarding the ongoing manpower shortage in the Chicago Police Department? That doesn’t look like it’s going to be resolved in 2015. From the Sun-Times piece:

Once again, the mayor’s budget includes only enough money to keep pace with retirements. It also includes roughly $70 million in police overtime, down from $100.3 million in 2013 and a projected $95 million this year…

(Editor’s note: Bold added for emphasis)

“Crime is down!” Yeah, whatever.

As always, I’m glad to see Fran Spielman and Hal Dardick are on top of their game.

What does all this mean for Chicago residents/workers/visitors?

It’s probably wise to budget a good deal more money for anything city-related next year. Even more so in 2016 considering what could be in store with the city’s public pension mess and what Cook County is telegraphing these days (blogged about Monday).

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(UPDATE: The Chicago City Council approved Mayor Emanuel’s proposed 2015 city budget Wednesday by a vote of 46-4, and “puts off dealing with the city’s most vexing financial woes until after next year’s elections” according to the Tribune Thursday morning)

Sources:

Spielman, Fran. “Chicago City Council set to pass Emanuel’s $7.3 billion budget.” Chicago Sun-Times. 19 Nov. 2014. (http://politics.suntimes.com/article/chicago/chicago-city-council-set-pass-emanuels-73-billion-budget/wed-11192014-742am). 19 Nov. 2014.

Dardick, Hal. “Higher Emanuel fees and taxes add up.” Chicago Tribune. 19 Nov. 2014. (http://www.chicagotribune.com/news/local/politics/ct-emanuel-budget-2015-met-20141118-story.html#page=1). 19 Nov. 2014.

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Global Economy Flashes Warning Signals

I’m picking up on a growing number of “bad vibes” about the global economy these days.

First, Rich Miller reported on the Bloomberg website Thursday about the findings of the latest Bloomberg Global Poll of international investors:

The world economy is in its worst shape in two years, with the euro area and emerging markets deteriorating and the danger of deflation rising, according to a Bloomberg Global Poll of international investors.

A plurality of 38 percent of those surveyed this week described the global economy as worsening, more than double the number who said that in the last poll in July and the most since September 2012, when Europe was mired in a recession.

Much of the concern is again focused on the euro area: Almost two-thirds of those polled said its economy was weakening…

Europe isn’t the only source of concern in the global economy, according to the quarterly poll of 510 investors, traders and analysts who are Bloomberg subscribers. More than half of those contacted said conditions in the BRIC economies — Brazil, Russia, India and China — are getting worse, compared with 36 percent who said so in July.

(Editor: Bold added for emphasis)

Granted, it’s just a poll. But there’s also this from British Prime Minister David Cameron in a piece he penned that was published on The Guardian (UK) website Sunday:

Six years on from the financial crash that brought the world to its knees, red warning lights are once again flashing on the dashboard of the global economy.

As I met world leaders at the G20 in Brisbane, the problems were plain to see. The eurozone is teetering on the brink of a possible third recession, with high unemployment, falling growth and the real risk of falling prices too. Emerging markets, which were the driver of growth in the early stages of the recovery, are now slowing down. Despite the progress in Bali, global trade talks have stalled while the epidemic of Ebola, conflict in the Middle East and Russia’s illegal actions in Ukraine are all adding a dangerous backdrop of instability and uncertainty…

(Editor’s note: Bold added for emphasis)

Cameron added the following, which I thought was pretty funny (disturbing?):

When we faced similar problems in recent years, too many politicians offered easy answers, thinking we could spend, borrow and tax our way to prosperity. Those were the wrong answers then; they are the wrong answers now. We are not going to repeat the mistakes of the past…

(Editor’s note: Bold added for emphasis)

Sound like any country you know?

Finally, exacerbating fears about global economic health was the following “shock” announcement. Mitsuru Obe and Eleanor Warnock reported on The Wall Street Journal website this morning:

Japan Falls Into Recession

Japan’s economy shrank for a second quarter in a row, after a sales-tax increase took the steam out of Prime Minister Shinzo Abe ’s bid to turn Japan into a global model of revival.

Mr. Abe, who has sought to revive the world’s third-largest economy after two mostly sluggish decades, is set to announce this week that he will delay plans to raise the nation’s sales tax next year and call elections in December…

“Two mostly sluggish decades”

Some really bright financial-types suspect Japan’s so-called “zombie economy” is what’s ultimately in store for America. While I have no doubt about a coming U.S. economic crash, I remain somewhat more optimistic for the country’s prospects upon emerging from the coming carnage.

Stay tuned…

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Sources:

Cameron, David. “David Cameron: Red lights are flashing on the global economy.” The Guardian. 16 Nov. 2014. (http://www.theguardian.com/commentisfree/2014/nov/16/red-lights-global-economy-david-cameron). 17 Nov. 2014.

Miller, Rich. “World Economy Worst in Two Years, Europe Darkening, Deflation Lurking: Global Investor Poll.” Bloomberg.com. 13 Nov. 2014. (http://www.bloomberg.com/news/2014-11-13/world-outlook-darkening-as-89-in-poll-see-europe-deflation-risk.html). 17 Nov. 2014.

Obe, Mitsuru and Warnock, Eleanor. “Japan Falls Into Recession.” The Wall Street Journal. 17 Nov. 2014. (http://online.wsj.com/articles/japan-falls-into-recession-1416182404). 17 Nov. 2014.

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2015 Cook County Budget Holds Line On Taxes, Fines, And Fees- For Now

Cook County residents dodged a bullet this time around.

John Byrne and Hal Dardick reported on the Chicago Tribune website Friday:

Cook County Board President Toni Preckwinkle on Friday won easy approval for her $4 billion 2015 budget proposal that includes no new taxes, fines or fees

(Editor’s note: Bold added for emphasis)

For now. Byrne and Dardick added:

Preckwinkle earlier this year warned that the 2016 budget will be far more difficult to balance because debt payments will grow and the county will need to pay $144 million more into the county workers’ retirement system if she secures the pension fund changes she seeks from the General Assembly…

(Editor’s note: Bold added for emphasis)

Regular readers of Survival And Prosperity know I suspect those “new taxes, fines, or fees” are coming soon. I wrote back on May 22:

Last week, I blogged about the possibility of property and/or sales taxes going up soon in Cook County, Illinois. Dave McKinney and Brian Slodysko reported on the Chicago Sun-Times website on May 13 the hikes might occur as part of a pension “reform” bill.

Hal Dardick and Monique Garcia added on the Chicago Tribune website tonight:

Cook County Board President Toni Preckwinkle hit Springfield Thursday to try to build support for changes to the county pension plan that she says would halt its ongoing decline toward insolvency.

She met with Senate President John Cullerton House Speaker Michael Madigan, both Chicago Democrats, and also Republican legislative leaders. “I think she’s got a good chance to pass this bill,” Madigan said afterward…

Although Preckwinkle has not identified how she would pay for her plan, it calls for the county to put $144 million a year into the pension fund. If funded with property taxes, that would cost the average homeowner up to $65 more a year, starting in 2017, according to one internal county document the Tribune obtained.

Preckwinkle, however, said Wednesday that she has closed even larger budget gaps through cuts and other, smaller scale tax and fee increases without raising property taxes — while also lowering the county sales tax by a half-cent on the dollar…

(Editor’s note: Bold added for emphasis)

Yet, McKinney and Slodysko wrote last week:

County officials do not believe they can cut enough from the budget to cover the cost, the source said…

(Editor’s note: Bold added for emphasis)

Only a matter of time now before those hikes kick in. As I also noted in that May post:

What’s that line I keep repeating on this blog?

Higher fees, fines, and taxes. Less government services.

As much as I hate saying it, that’s what Chicago and Cook County residents should be preparing themselves for down the road.

I’d say that probably applies to all Americans, come to think of it.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Source:

Byrne, John and Dardick, Hal. “Preckwinkle wins easy approval of $4 billion budget.” Chicago Tribune. 14 Nov. 2014. (http://www.chicagotribune.com/news/ct-cook-county-budget-met-1115-20141114-story.html). 17 Nov. 2014.

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Flee Chicago By The End Of 2015?

April 7, 2015.

That’s the date of the next Municipal Runoff and Supplementary Aldermanic Election in the wake of the February 24, 2015, Municipal General Election in the city of Chicago, Illinois.

And that would be the ideal deadline for moving out of the “Windy City” if I still lived there due to the likelihood of fees, fines, and taxes being hiked (even more than they already have) shortly thereafter, along with additional government “belt-tightening.”

If not April 7, definitely by the end of the year. Hal Dardick reported on the Chicago Tribune website right before the weekend:

Mayor Rahm Emanuel and aldermen won’t grapple this fall with the financial reckoning the city faces over its underfunded police and fire pension systems, budget officials acknowledged Thursday.

Instead, the Emanuel administration plans to take advantage of a state law that gives it until December 2015 to decide to make changes to its property tax levy. For years, both the current and former mayor have been saying property taxes would have to be hiked or services drastically cut to come up with the extra $550 million.

By the end of next year, the February city elections and any potential April runoffs will be history. Delaying a decision also will buy the city more time to get the General Assembly to enact pension changes that could significantly reduce the required payments to the two retirement funds..

(Editor’s note: Bold added for emphasis)

Fine. So the Illinois General Assembly votes to allow the City of Chicago to “kick the can down the road” on its pension fund payments. The well-publicized crisis isn’t going anywhere, as the public sector retirees are still owed their money.

(Editor’s note: Check out this graphic on the Tribune website showing Chicago’s pension debt rank compared to the 25 largest U.S. cities and Puerto Rico. It’s disturbing.)

And how about that “Sword of Damocles” hanging over the city’s head in the form of long-term debt it’s on the hook for? Fran Spielman reported on the Chicago Sun-Times website on July 26, 2013:

The new round of borrowing brings Chicago’s total long-term debt to nearly $29 billion. That’s $10,780 for every one of the city’s nearly 2.69 million residents. More than a decade ago, the debt load was $9.6 billion or $3,338 per resident.

(Editor’s note: Bold added for emphasis)

Remember- those figures were from a year ago. Updated numbers should be out shortly.

Yep. If I hadn’t departed the city like I did last year, I’d be making plans to leave Chicago by the end of 2015 at the latest.

But that’s me. I understand individual circumstances vary, and there are residents who can’t leave or choose not to.

Despite what others may think, I have an idea this group can still weather the coming storm if they’re really up to the task. I’m guessing it will be somewhat harder though residing in a city already burdened with significant financial problems when challenging times arrive.

More about this in future posts…

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Sources:

Dardick, Hal. “Chicago’s day of reckoning over pensions delayed.” Chicago Tribune. 1 Aug. 2014. (http://www.chicagotribune.com/news/watchdog/ct-rahm-emanuel-budget-hole-met-0801-20140801-story.html). 5 Aug. 2014.

Spielman, Fran. “City of Chicago’s cash cushion plummets, debt triples, arrests drop, water use rises.” Chicago Sun-Times. 26 July 2013. (http://www.suntimes.com/21552920-761/city-by-the-numbers-cash-cushion-plummets-debt-triples-arrests-drop-water-use-rises.html). 5 Aug. 2014.

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NY Times Bestselling Author Brad Thor ‘Very Fearful’ Of Terrorist Attack In U.S.

Any readers ever hear of best-selling author Brad Thor? I first heard his name mentioned on TheBlaze website back in the spring. At that time, Thor- who’s brand-new thriller Act of War was just released Tuesday- announced he was moving his family from Chicago, Illinois, to Nashville, Tennessee, because of violent crime and high taxes.

I spotted Thor’s name again on Glenn Beck’s site last night. Erica Ritz wrote:

After 9/11, New York Times bestselling author Brad Thor was one of a select group of individuals asked to assist the United States government in “war gaming” the next move of radical jihadists.

Why? Because he and other thriller writers had demonstrated an uncanny ability to predict events years before they occur. Thor warned of the NSA spying scandal in his book “Black List,” and predicted the release of five of the most dangerous Guantanamo Bay detainees seven years ago in “The First Commandment.”

So where does Thor believe we are headed next?

He told listeners of The Glenn Beck Program yesterday:

What chilled me was Dick Cheney recently saying that within the next six years, we’re going to see a terrorist attack on American soil worse than 9/11. You know, with two-thirds of our border agents changing diapers and trying to feed these children coming across the border, that doesn’t leave many to guard a border that- even at 100-percent strength- people were still getting through. I’m very concerned that the enemies of the United States are exploiting- because they exploit every opportunity to get bad actors into the country. And we already know Iran has lots of bad actors already in the country- Agents that are in place, waiting to be activated should the Iranians trigger them and tell them to activate.

I am very fearful that we could see some sort of terrorist attack in the United States…

As am I, Mr. Thor. As am I…


“Brad Thor Act Of War”
TheBlaze TV Video

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Source:

Ritz, Erica. “Bestselling Author Brad Thor, Who Predicted NSA Spying Scandal and Controversial Prisoner Exchange, Shares What He Fears Is Next for America.” TheBlaze. 9 July 2014. (http://www.theblaze.com/stories/2014/07/09/bestselling-author-brad-thor-who-predicted-nsa-spying-scandal-and-controversial-prisoner-exchange-shares-what-he-fears-is-next-for-america/). 9 July 2014.

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Chicago’s Monthly Phone Tax To Rise 56 Percent?

New and higher fees, fines, and taxes. Less government services.

That’s what Chicagoans should expect going forward considering the city’s fiscal health and who’s running the show.

Fran Spielman reported on the Chicago Sun-Times website last night:

After playing cat-and-mouse for days, Mayor Rahm Emanuel’s administration came clean Thursday: Chicago wants to raise the monthly fee tacked on to hardline telephone and cell phone bills by 56 percent — to $3.90…

(Editor’s note: “After playing cat-and-mouse for days, Mayor Rahm Emanuel’s administration came clean Thursday…” Beautifully worded; bold added for emphasis.)

Spielman continued:

Instead of simply asking the General Assembly to renew a $2.50-a-month surcharge due to expire July 1, cash-strapped Chicago is seizing the opportunity to get more money — by asking state lawmakers to raise the cap to “the highest monthly wireline surcharge imposed by any county or municipality” in Illinois.

The highest monthly telephone tax around the state is the $3.90 imposed in Putnam County. Under the bill Emanuel is hoping to push through in the waning days of the Legislature’s spring session, Chicago would be empowered to match that $3.90 — and go higher if any other city or town goes first.

The new and higher tax would apply to both cell phone bills and wireline phones, according to a summary sheet of the legislation distributed by City Hall. The bill would also empower the city raise the fee imposed on prepaid cell phones from the current “seven percent of the transaction amount” to nine percent…

According to Spielman, a 56 percent increase in the monthly phone tax would generate an additional $50.4 million for the City’s coffers.

John Byrne, Monique Garcia, and Ray Long added on the Chicago Tribune website Thursday:

Emanuel’s late push for a measure that would allow the City Council to raise 911 fees by as much as $1.40, which could bring the monthly charge on landline and cell phone bills to $3.90 a month, cleared its first hurdle in the Senate.

Senate President John Cullerton, D-Chicago, said the increase was needed because the current $2.50 fee isn’t raising enough money to pay for operating the city’s emergency response center, forcing the Emanuel administration to dip into other pots of money to keep it running. How much more the fee hike would bring in depends on whether aldermen vote to increase the fee and to what level.

The city collected about $90 million last year through the current $2.50-per-month phone fee, Emanuel spokeswoman Kelley Quinn said. This year’s budget for the Office of Emergency Management and Communications is $123 million. Quinn did not directly answer whether the mayor wants to raise the 911 fee to an amount that will bring in more revenue than the city needs to cover the OEMC budget or how the city would use any extra revenue

Let’s see. Assuming the City of Chicago collects the same amount ($90 million) as last year from their monthly phone tax, adding the projected $50.4 million from a 56 percent hike totals just over $140 million. That’s enough to pay for OEMC operations plus tax- although something tells me that’s probably not where all the money would be steered to.

(Editor’s note: Bold added for emphasis)

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Sources:

Spielman, Fran. “Emanuel seeks 56 percent hike in telephone tax.” Chicago Sun-Times. 29 May 2014. (http://politics.suntimes.com/article/chicago/emanuel-seeks-56-percent-hike-telephone-tax/thu-05292014-434pm). 30 May 2014.

Byrne, John, Garcia, Monique and Long, Ray. “Emanuel makes late push to raise 911 fees paid by those own landlines, cell phones.” Chicago Tribune. 29 May 2014. (http://www.chicagotribune.com/news/politics/clout/chi-emanuel-makes-late-push-to-raise-911-fees-paid-by-those-own-landlines-cell-phones-20140529,0,6958184.story). 30 May 2014.

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Study: Chicago Worst U.S. City For Total Travel Tax Burden

“It’s no secret that the city of Chicago is looking anywhere for new revenue sources to plug its $63.2 billion shortfall in government-pension funding, health insurance and other debt.

But city leaders should be careful not to squeeze travelers too hard.”

-Hilary Gowins Yelvington, Editor at the Illinois Policy Institute, in a May 29, 2014, blog post on IllinoisPolicy.org

There’s no question Chicago is a favorite destination for business and pleasure travel.

However, the findings of a recently-released study of travel-related taxes for major U.S. cities makes me wonder how many prospective visitors are steering clear of the “Windy City” due to the high level of such expenses.

Shane Downey wrote on The Business of Travel- the official blog of the Alexandria, Virginia-based nonprofit Global Business Travel Association- back on April 15:

The GBTA Foundation – the education and research arm of GBTA – annually tracks the tax burden imposed on business travel throughout the country. The study examines hotel lodging, car rentals and restaurant meal taxes in the top 50 U.S. destination cities, which are regularly used to fund local projects unrelated to tourism and business travel…

In the travel tax study, the top 50 U.S. markets are ranked by overall travel tax burden, including general sales tax and discriminatory travel taxes…

And where did travelers incur the highest total tax burden, factoring in general sales taxes and discriminatory travel taxes?

From the FOX News website Tuesday:

1. Chicago- $41.04/day

• The Windy City could just as easily be called the Spendy City; it’s at the top of the GBTA study for the third year in a row. Travelers will dish out 16 percent ($16.85) per day in hotel tax, along with $14.16 for a rental car (its overall 24.82 percent rate, the highest in the ranking, includes a $2.75 flat tax). Another study put Chicago’s 10.75 percent downtown restaurant tax at the top of all major U.S. cities…

Over 41 bucks a day. Wow. And top of the GBTA study for three years in a row now. Not something the City of Chicago should be proud of.

A part of me says, “Reign in these taxes, and business travel and tourism would really be booming in Chicago.”

But only after violent crime and the “city leaders” who sanctioned such high levels of taxation are dealt with first, of course.

Probably won’t see that happening anytime soon, however.

You can read the rest of that GBTA post on their website here.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Source:

Bachelor, Blane. “10 worst cities for travel taxes.” FOX News. 27 May 2014. (http://www.foxnews.com/travel/2014/05/27/10-worst-cities-for-travel-taxes/?intcmp=obnetwork). 29 May 2014.

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Illinois House Speaker Michael Madigan Vows To Get State Income Tax Hike Made Permanent

The Illinois House of Representatives approved a $35.7 billion state spending plan yesterday which didn’t factor in funds from a 2011 temporary income tax hike being made permanently available. I surmised Tuesday:

So does this mean Illinois Democrats have abandoned their push to make the temporary income tax hike permanent? I doubt it. This is “Madiganistan,” after all. And what Mike wants, Mike gets.

I wouldn’t be surprised to see some sort of maneuvering being carried out to eventually land these funds. Perhaps another “temporary” increase in such taxes sometime after the November 2014 election, with buzz words such as “fiscal emergency” and “for the children” being used to justify the measure?

Monique Garcia, Ray Long, and Maura Zurick reported on the Chicago Tribune website last night:

Speaker Michael Madigan acknowledged the budget proposal would leave unfinished business and vowed to spend the summer and fall working to get the income tax hike made permanent to provide more money to run state government. The approach also ensures the governor’s race will continue to be framed up by opposite positions on a tax hike Democratic Gov. Pat Quinn and Republican challenger Bruce Rauner have staked out.

“My expectation is that this issue will be taken into the general election and I think the governor will be supportive of an extension of the income tax increase through the general election,” Madigan said. “My expectation is that Mr. Rauner will be against. So you’ll have a clear line of division going into the election. And people can make their choice.”

(Editor’s note: Bold added for emphasis)

Hmmm. Should Governor Quinn be re-elected, one more buzz word I suspect Illinoisans might hear before legislative action is taken by the Democrats to make the income tax hike permanent is “mandate,” as in “Illinois voters have given us a mandate to make the temporary income tax hike permanent during this fiscal emergency. Remember- it’s for the children!”

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Source:

Garcia, Monique, Long, Ray and Zurick, Maura. “State budget would put off tough decisions until after election.” Chicago Tribune. 27 May 2014. (http://www.chicagotribune.com/news/politics/clout/chi-state-budget-would-put-off-tough-decisions-until-after-election-20140527,0,6506902.story). 28 May 2014.

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Illinois Democrats Abandoning Attempt To Make Temporary Income Tax Hike Permanent?

“In his election-year budget speech Wednesday, Gov. Pat Quinn called on lawmakers to make permanent the 67 percent temporary income tax increase they approved in 2011…

Quinn’s budget speech was the first time he directly addressed what should be done about the pending expiration of much of the temporary tax increase. When lawmakers approved raising the state’s personal income tax rate from 3 percent to 5 percent, they stipulated that the rate should drop to 3.75 percent on Jan. 1, 2015…”

-The State Journal-Register (Springfield), March 26, 2014

There’s news coming out of Springfield that the Democrats are preparing an Illinois state budget that accounts for the expiration of the temporary income tax hike they approved in 2011. Doug Finke reported on The State Journal-Register website last night:

House Democrats are preparing a new state budget that allows most of the temporary income tax increase to expire on schedule at the end of the year.

“Today we’re going to have our (budget negotiators) working toward a middle-of-the-road budget that would be consistent with the revenue estimates which have been adopted by the House,” House Speaker Michael Madigan, D-Chicago, said Monday. “The income tax increase would not be extended.”

From an Associated Press piece earlier today:

House Speaker Michael Madigan emerged from a Memorial Day caucus meeting and told reporters he was dropping the idea of making the 5 percent income tax permanent — and crafting a budget blueprint that holds the line on spending but is not the “doomsday” plan the House overwhelmingly rejected Friday.

“We’re going to call upon the agencies and those that receive appropriations from the Legislature to live within their means,” said Madigan, a Chicago Democrat. “We understand the way this is… Let’s take a good hard look at it and get the job done.”

So does this mean Illinois Democrats have abandoned their push to make the temporary income tax hike permanent? I doubt it. This is “Madiganistan,” after all. And what Mike wants, Mike gets.

I wouldn’t be surprised to see some sort of maneuvering being carried out to eventually land these funds. Perhaps another “temporary” increase in such taxes sometime after the November 2014 election, with buzz words such as “fiscal emergency” and “for the children” being used to justify the measure?

Stay tuned…

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Sources:

Finke, Doug. “House Democrats work on budget without tax increase.” The State Journal-Register. 26 May 2014. (http://www.sj-r.com/article/20140526/NEWS/140529531/). 27 May 2014.

“Illinois Democrats give up on tax-hike extension.” Associated Press. 27 May 2014. (http://www.chicagobusiness.com/article/20140527/NEWS02/140529846/illinois-democrats-give-up-on-tax-hike-extension#). 27 May 2014.

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