Freitag, Februar 26, 2010

Digging A Deeper Hole...

The State of Illinois is digging itself a California-style hole.

See this.

What must Illinois - and by analogy, any other state with massively underfunded pension schemes - do?

Not should, but must?

If you are in a financial hole, the first thing you have to do is stop spending. If you keep on spending, you are digging a deeper hole. You can hope for an inheritance, you can hope for a pay raise to help you out, but you can't count on them: you can count on cutting spending, because it is in your control.

Instead, you get thousands of people - activists and unionists all - demonstrating for increasing taxes.

After all, the government can simply decide to raise taxes: it has the power to do so, after all!

The problem is that increasing taxes induces overall behavior changes: tax cigarettes, and fewer will smoke. Tax sin and sin becomes more expensive (at least for the dedicated sinner: it will change the behavior of those merely ... tempted).

But it will not generate you an increase in revenue that you can count on: people will find ways of avoiding taxes that they see as onerous, that they see as helping corruption and waste, that they see as the easy choice, rather than taking the hard choice of cutting spending.

The Illinois state budget deficit will probably be at least 50% of total Illinois state revenues. That means that the state deficit is no less than 1/3rd of the state budget.

That's an awfully deep hole that the Illinois state government has dug.

And they want to dig it deeper: health care and pensions are proving to be such heavy obligations that they are bankrupting the system.

Perhaps, and I know that this is heretical, but just perhaps the government shouldn't be doing everything? That maybe those well-paid and corrupt Illinoisians that also have lush pensions and cushy health-care provisions should maybe pay for themselves?

Instead, the state government is digging itself deeper and deeper: perhaps Illinois will become the new California.

Then again, that is no longer something to strive for.

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