Taxes, tension up in Illinois

In many states, it’s hard to find voters who say they don’t mind seeing their taxes raised.

But this is Illinois, home turf of President Obama and a state in which Democratic Gov. Pat Quinn was elected in 2010 despite saying he wanted to raise taxes to help fill a projected $13-billion budget deficit. Last year, the Democratic Legislature signed off on a bill that raised income taxes by 66% and corporate taxes by 46%.

“I’m not against raising taxes if it’s going to benefit schools and stuff,” said Terry Jackson, the owner of Better Detailers, a shop in this small town in a Republican county just across the border from neighboring Indiana.

The strategy, long urged by Democrats in states such as California, hasn’t worked as well as some might have hoped. Illinois is still deeply in debt and struggling to fund pension obligations; Moody’s downgraded the state’s debt to A2, the lowest of any state.

Unemployment is at 9.4%, the same as a year ago. Over the year, unemployment in many states has dropped significantly -- in California it fell 1.2 percentage points.

The financial troubles suggest that simply raising taxes and cutting services -- the options most often broached by voters -- aren’t likely the solution this time.

“Other states can look at Illinois and see that merely raising revenue without structural changes is not enough to fix the problem,” said Laurence Msall, president of the Civic Federation, a tax watchdog group in Chicago.

Concern over the effects only increased when the Legislature in December approved $300 million in tax breaks, largely for two corporations, Sears and the Chicago Mercantile Exchange, after they threatened to leave the state.

“It was really obscene to give these guys a tax break; that did increase people’s skepticism,” said Ron Baiman, director of budget and policy analysis at the Center for Tax and Budget Accountability, a Chicago think tank that supports a flat tax.

The state’s financial condition is creating tensions in small towns such as Danville, where businesses are struggling and residents are blaming each other for gobbling up government revenue.

Gas taxes, tolls and income taxes are going up, and “I see abuses -- people getting money when they don’t deserve it,” said Ron Gray, 65, a Danville retiree who used to work in a meatpacking plant. “People are having children to generate income, and the government keeps asking for more money. Enough is enough.”

“They need to start requiring everyone getting aid to take drug tests,” said Don Pribble, who owns a coffee shop in downtown Danville, where the main street is dotted with empty stores and dwarfed by a hulking grain elevator a few blocks away.

But the state’s budget problems can’t be blamed just on people on state aid. Much of the $6 billion in new revenue from the tax hikes went to fund Illinois’ pension obligations and to pay bills the state had skipped out on in past years; the state is still $500 million in the hole. Without reforming Medicaid, government employee pensions and healthcare costs, no amount of tax increases can patch the hole that states such as Illinois -- and California -- will eventually face, said Msall of the Civic Federation.

Before the tax hikes lapse in 2015, Illinois will likely have to grapple with what to do next. Two-thirds of voters here say they agree with the so-called Buffett rule, which would require people making more than $1 million to pay a 30% tax rate, according to a Chicago Tribune/WGN-TV poll.

But it’s possible that even here, residents are becoming wary of tax increases.

Just ask Greg Wilson, 64, who owns a record store in downtown Danville. He says he’s a devoted Democrat, but he’s skeptical of the hikes that have kept customers from spending more at his store this year.

“If the tax increases had actually paid the bills, maybe we would have felt better,” he said.

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alana.semuels@latimes.com