“Billions racked up in public debt to plug budget holes, pay overdue bills, and put money into its mismanaged pension funds... this has resulted in decrepit commuter trains and buses, thousands of unsound bridges, 200 hazardous dams and one of the most inequitable public school systems... Retirees may lose their pensions as the funds dwindle, low-income and disabled people may lose their health care as costs escalate...”
Is this Greece? No. This is from a report given by the Illinois State Budget Crisis Task Force, headed by former Federal Reserve chairman Paul Volcker. The 5th-largest state in the U.S. by both population and GDP is nearely insolvent. The capitalist crisis continues to hit state and local governments the hardest, bringing cuts and austerity in its wake.
After decades of heavy borrowing, Illinois has the lowest credit rating of all 50 states, borrowing more money relative to the size of the state’s economy and tax revenue than much poorer states such as South Carolina and Alabama. Public debt per capita is second only to New York state, which collects much more revenue from taxes.
Each person in the state “owns” $9,624 in state and local debt. The state’s “direct debt” now stands at over $58 billion. To make things worse, the Federal Securities & Exchange Commission has accused Illinois of fraud for saying that it was funding workers’ pensions, when in reality it was not. This highlights the most glaring of Illinois’ problems—the state’s massive pension deficit, which stands at more than $85 billion.
Responding to the S.E.C.’s charges, Democratic state Governor Pat Quinn said, “Without pension reform, within two years, Illinois will be spending more on public pensions than on education. As I said to you a year ago, our state cannot continue on this path.”
For Quinn and the Democratic majority in the legislature, “reform” means one thing—cuts. Already, the legislature has raised the retirement age for public sector workers and put limits on the pensions future workers can earn. But, according to Volcker’s task force and the media mouth-pieces of big business, this is not enough. Never mind that public sector workers in Illinois are not eligible for Social Security!
Even in Illinois, the “bluest of the blue states,” where “pro-worker” Democrats have a supermajority at all levels of government, the working class is asked to pay for a crisis it did not create. In this, Illinois is far from alone. According to the National Conference of State Legislatures, since 2009, “43 states enacted some form of major alterations to their retirement plans for public employees and teachers... Such laws were a rarity before 2005.”
Deficits and Tax Havens
For decades, the Democratic-controlled state legislature was able to keep education, health, and pension funding relatively afloat, while at the same time allowing the biggest corporations to skip out on their tax bill. Only 8% of the taxes collected in the state come from large corporations. It was a Democratic Party dream come true—it gave the impression that they could look after the interests of capitalism while simultaneously “sticking up for working people.” But this was only possible by borrowing more and more money and by using accounting gimmicks that would make Al Capone proud.
In 1994, the legislature passed a law allowing for the state’s pension funds to go underfunded. Former Democratic Governor Rod Blagoevich allowed the state to begin issuing disaster relief bonds (for emergency purposes), not to fill sand bags to fight floods or provide relief to tornado-stricken towns, but to cover general revenue shortfalls. This is somewhat similar to how a slum lord will burn down one of their dilapidated buildings to cash in on fire insurance! Blagoevich later went to prison on corruption charges; 4 of the last 8 Illinois governors have suffered the same fate.
In 2003, another law was passed allowing even less funding for pensions. Then, in 2005, the state borrowed a record-breaking $10 billion from Bear Stearns to avoid a pension shortfall, paying more than $76 million in interest. It later was revealed as part of Blagoevich’s corruption trial that Bear Stearns had made payments to the then-governor in order to get the loan contract (and the fat profits from the interest!).
The state’s pension fund has been raided year after year to make up for shortfalls in other areas, while crooked accounting was used in an attempt to fool public sector workers into thinking that their pensions would be honored. All the while, taxes on the wealthy and big business have been kept low. This is the real reason the state pension fund is short $85 billion—not the “greed” of public sector unions!
Two-thirds of the biggest corporations based in Illinois pay no taxes at all, to neither the federal or state government. The list of big corporations based in Chicago includes McDonalds, Boeing, Walgreens, Kraft, United / Continental Airlines, and Motorola. For the big corporations that do pay up, they are only asked to pay 7% to the state.
According to a report from the Illinois Public Interest Research Group, tax dodging by the wealthiest individuals and corporations has reached astonishing levels. Nationwide, in 2012 they avoided paying $150 billion by funneling money to off-shore tax havens. This would have been more than enough to prevent the “sequestration” budget cuts at the federal level.
For example, Pfizer, the U.S. pharmaceutical giant, despite making 40% of its profits in the country, paid zero dollars in taxes while stashing $73 billion abroad. Citigroup, one of the big banks bailed out by the public in 2008, also paid no taxes in 2012, and has $46.8 billion hoarded away in tax havens.
Who Pays?
Illinois PIRG found that tax-dodging costs the state $2.5 billion every year. This is interesting when read alongside a report from NBC Channel 5 in Chicago titled “Illinois Ranked #2 in Hosing the Poor on Tax Day.” According to the article by Edward McClelland:
“Illinois taxes families of four making 57 percent of the poverty level. This means that a family earning $13,100 a year must pay income tax. Due to state fiscal issues, Illinois raised its flat income tax rate from 3 percent to 5 percent in 2011. This caused income taxes for a family of four at the poverty line to increase by $322.”
Only Alabama has more unequal taxation. The average tax bill for the working poor in Illinois is $509/year—and the state gives no tax credits to reduce it. Alongside this, Illinois has the 4th-highest gasoline tax in the country, and one of the highest sales tax rates. While corporate taxes make up just 8% of state revenue, sales and income taxes made up 81%.
Not suprisingly, a poll conducted by the IIRON Foundation found that “70% of voters think most Illinois politicians put the interests of large corporations and their lobbyists ahead of the interests of the people in their district—including 71% of Republicans.” This is regressive taxation in the extreme. The working class majority is being saddled with the burden of taxation, while the wealthiest individuals and big business hoard billions abroad.
Where do the state’s ruling Democrats stand? According to IPIRG, while it is public record that 2/3 of corporations in Illinois don’t pay taxes, it is not known which exact corporations these are. In 2012, a corporate tax transparency bill in the house was defeated by the Democratic majority on the house finance committee.
Under capitalism, public budgets, social services and the taxes that pay for them are a class question. Who pays? On one side, the working class fights for funding for Social Security, public sector workers’ pay, benefits and pensions, public transit, Medicare/Medicaid, funding for health, quality public education, and other programs which benefit society as a whole. The public sector is forced to provide these services because the private sector (the “free market”) is incapable of providing them, or if it can, does so to make a profit, which drives costs so high that they become inaccessible to many.
On the other side, the capitalist class wants to make higher and higher profits. They want to keep both the wages they pay to workers in the private sector and the taxes they pay to the public sector low, since both of these eat into profits. The services the public sector provides are used directly by the working class, but without things like a public education system to train workers and public transport to get them to the workplace, the capitalists in the private sector would not have a workforce to make their profits for them! But since capitalism is a profit-driven, anarchic, and irrational system, the capitalist class as a whole still resists paying taxes and keeps billions safely out of reach from the tax man.
Pensions Battle—Make the Rich Pay!
After decades of keeping the state budget afloat by overloading it with debt, trying to avoid raising taxes on the rich, and confronting public sector unions, the Democrats in the Illinois legislature can now no longer put off a showdown. A big obstacle in their plans to implement further austerity is the powerful labor unions of Illinois, which have more than 800,000 members statewide. The Democrats are worried, not only of a backlash at the polls, but of sparking a broader fightback.
After a strike last year of the Chicago Teachers Union, which won the support of the overwhelming majority of city’s residents and beat back the worst of Mayor Rahm Emmanuel’s attacks, a statewide replay of that struggle is not something they look forward to. But sooner or later, they cannot avoid it: the crisis of capitalism demands it.
This is exactly what is being prepared. In March, the Illinois House approved a measure to sharply reduce cost of living adjustments for retired state workers, which would evaporate pensions in the face of inflation. Responding to proposed cuts, Henry Bayer, director of the American Federation of State, County and Municipal Employees Council 31 said: “You would think a Democratic governor would be on the side of the working people... this is a Republican program.” But as experience shows, when push comes to shove, the Democratic Party will always come down on the side of big business. The interests they serve are not fundamentally different from the Republicans’.
Public sector unions in Illinois will be forced to fight back. They already have the powerful example given by the Chicago teachers’ strike, which showed that mobilizing the support of students and parents, retirees, and working people in general is key.
But the severity of the crisis means the struggle will have to be taken several steps further. The public sector unions should call on unions in the private sector to join the fight, up to and including solidarity strike action. This will put the profits of the biggest corporations in the private sector—that is, of the biggest tax dodgers—in danger, and they will be forced to put pressure on the Democrats to give in to the workers’ demands.
But strikes and even general strikes and workplace occupations by public sector workers, even if they are strengthened by solidarity strikes by workers in the private sector, would not be enough to turn the general tide of cuts and attacks. We should look at the situation in Greece. Despite more than 20 general strikes over the past few years against the harsh austerity measures being imposed there, the depth of the crisis means the state must make the cuts regardless. The Greek government is totally insolvent. The only way to fight austerity in such conditions is to also fight politically. The working class must fight not just in the streets and in the workplace, but also for political power.
Illinois has not yet reached the point of complete insolvency, but it is only a matter of time before it does. It is one of the the “weakest links” of sick American capitalism. Before that happens, the representatives of big business in the state legislature—the Democrats—will try to force through deep cuts. To stop this, the unions in the state must combine action on the streets with political action.
This means breaking with the Democrats and forming a Labor Party. If such a party stood firmly against cuts and for making the rich pay for the crisis, it would attract the enthusiastic support not just of unionized public and private sector workers, but of the youth, working poor, blacks, Latinos, and the broadest layers of the working class majority in general.
With a labor party, we could fight not just to honor and improve the pensions of teachers, firemen, transit workers, and other public employees, but to fully fund Medicare/Medicaid, public education, and other needed services. We could fight to drastically change the anti-worker, regressive tax code and put in its place a system of aggressively progressive taxation, and relieve the wallets of working people while improving services. We would be able to close the gaping loopholes allowing billionaires and the mega-corporations to stash mountains of cash away from taxation, by establishing workers’ control committees in the large corporations to closely examine their real assets, liabilities and bank holdings. This would be a check against capital flight and the shifting of billions of dollars out of the country.
But even a labor party would not be enough. This is why the working class must fight for socialism, which can only be realized by nationalizing the key levers of the economy and establishing workers’ control committees to run these companies in the interests of society as a whole. Only by integrating the public and private sectors and running them democratically as part of a rationally planned economy can crisis, budget cuts, and austerity be made a thing of the past. This is the only way forward.