Paying For It All

California has chosen to cut, cut, cut to balance its budget (and still faces a huge hole.)  Illinois on the other hand is still able to raise revenues...and they just did in a huge way.

Many states are struggling with anemic revenues and the prospect of an end to additional federal funds, but Illinois faces a budget deficit of as much as $15 billion, owes some $8 billion in unpaid bills to social service agencies, doctors, dentists and others, and is receiving mounting signs of worry from bond investors.

Under the legislation, the income tax rate would, at least temporarily, rise to 5 percent from its current rate of 3 percent. Lawmakers had talked about an even steeper increase, but set that aside as the hours went by and the debate grew increasingly emotional. The rate for corporate taxes would rise to 7 percent from its current rate of 4.8 percent. As part of the deal, the state’s spending growth would be limited from one year to the next over the next four years.

Gov. Patrick J. Quinn, a Democrat whose signature would be needed to make any rate increase final, has indicated in the past he believes a tax increase is necessary.

The tax hike irked Republicans in Springfield, the state capital, and business owners around the state. Again and again, Republicans argued that the state needed to make significant spending cuts to solve its deficit before it even began considering a tax increase.

On the Statehouse floor on Tuesday night, Roger L. Eddy, a Republican representative, said that lawmakers were essentially “making up for our mistakes” on the backs of taxpayers, while one state senator called it a “train wreck.” Representative David Reis, another Republican, warned of the “sucking sound” he imagined would now be heard of businesses leaving the Illinois.

The fallout of the vote remains to be seen: Will Illinois businesses really now flock to neighbors Wisconsin and Indiana as opponents have suggested? Will the increase impress investors and quickly improve the state’s sunken bond rating? And, perhaps most of all, will the change be enough to turn around the financial woes of a state where the deficit has grown to the size of half of the annual general fund? 

We'll see.  Republicans who forced California into draconian cuts say they had no choice.  Illinois Democrats who forced a major raise in the state's income tax said they had no choice either.  We're about to see a laboratory of democracy experiment in action.

Which state will recover first, if either?