More Taxes

It been proposed in the Illinois State Senate that the Government oppose a 3 percent tax on businesses that spend less than 4 percent of there payroll on health care insurance for their employees in order to pay for a stripped down version of Governor Blagojevich health care plan, this plan has a number of problems with it. First it makes the assumption that companies have a duty to provide all or most of their employees with health insurance, while in many case it is a good policy for companies to offer health insurance as a benefit in order to increase their likely hood of attractive and retaining qualified employees but its not the place of the government to decide what benefits package a company should offer and penalize them if they don’t. Also some companies may choose to pay their employees more in lieu of providing them with health care, paying them enough that they could purchase it on their own. Many smaller companies might not have high enough profit margins to be able to afford either the cost of the 3 percent tax or spending 4 percent of their pay roll on health insurance cost.

The next problem with this is that will discourage companies from high low skilled/unskilled labor because these are the employees that companies gain the least benefit from offering health insurance from and if the company has a mixture of highly skilled workers that they offer insurance and low skilled/unskilled workers, the more low skilled/unskilled labor that a company hires would increase their overall payroll and decrease the percentage of their payroll that goes to health insurance cost. This would encourage companies to hire fewer low skilled/unskilled labors in Illinois, particularly large companies that can more easily shift this kind of work out of state, and raising the unemployment rate for these groups in the state. This means fewer jobs for Illinoisans overall and slower economic growth and it will make Illinois a less attractive place for companies to do business in by raising the cost of doing business here. Final this will end up being a stealth tax on the consumer as some portion of the tax will be passed on to the consumer in the form of higher prices, as with any other taxes of this nature it will have a larger effect on the lower income groups that spend most if not all of their income on consumption and lesser effect on higher income groups that save a portion of their income.

Comes down to the crux of the problem with the Illinois State budget, that it’s not a revenue problem but a spending and management problem, some of the state leaders want to spend far more than the state can afford to spend.

On sad note former Illinois State Representative, Jay Ackerman was killed this week in a accident, I known Jay and his family for a number of years and they have my deepest sympathies during this time.

Cigarette Tax Increase

The new proposal on how to add more revenues to the Illinois budget is to double the tax on cigarettes from 98 cents to a dollar and 98 cents. The cigarette tax increase is attractive to many State Senator and Representive that don’t want to raise taxes in general because one it only directly affects a small percentage of the Illinois population and target a product that most people dislike and that many moral oppose. It far easier to sell a “sin” tax to the general public than a general increase in the sales or income tax. While I don’t smoke, dislike the habit and could care less what the prices of cigarettes are, I still oppose the increase in the cigarette tax. The first reason is that it is a highly regressive tax; the poorer in society have a higher likely hood of being smoker and would ended paying a higher percentage of the tax than the percentage of the state income that they make up. Second if the increase in the tax is large enough it would serve to encourage people in the border area of the states to travel to near by state in order to purchase cigarettes, according to some estimates if the tax increase go throu consumer in downstate Illinois would be able to save around 20 dollars a carton by buying cigarettes out of state and consumer in Chicago could save around 30-40 dollars. The other side of this is will encourage the black market sales of cigarettes and the criminal eliminates that comes with black markets and smuggling. If the tax is high enough it will allow black marketers and even more criminal eliminate, such as gangs to make money by either stealing cigarettes or smuggling out of state cigarettes and then selling them, particular in Chicago/Cook County were prices are even higher. The third problem is that there are around 8,000 jobs in Illinois that depend directly or indirectly on the sales of cigarettes, if the tax increase leads to a decrease in the (legal) sale of cigarettes in the state, these jobs will be threaten and associate income and business tax revenue from them

The Final problem is that it makes a large part of state review, around a billion dollars subject to changes in the amount of cigarettes that are sold in the state and decline in sales of state cigarettes would reduce state revenues and increase in smoking, which I am sure most people would agree is a bad thing, would increase state revenue.

Today the Governor announced plans to try and prevent insurance companies from basing increases in health insurance premiums on changes in the insure health, which is about the same as saying an insurance companies can not base auto insurance on the drivers history of accidents or tickets or housing insurance on the home location and if it in area that prone to flooding, fires, hurricanes, tornadoes, ect. Since Insurance is protecting an individual against a possible negative event from happening to them, an actuarial fair premium is equal to the cost of the negative event times the likely hood of it happening spread out over the time period of the policy. So a person with a higher likely of the negative event happening to them should pay more and some with a lesser change of the event happening would pay less. Since Insurance companies do not have access to perfect information on the likely hood of something happening they have to use information like a person health history and other risk factors to decided on the premium level, and usual people with lower risk end up paying more and people with higher risk pay a little less than they should because of the information asymmetries inherent in life forces insurance companies to pool clients together so that they can cover there pay outs with the premium coming in from a diverse group of clients some that are low risk, some that are medium risk and some that are high risk, ect, few insurance companies actually make much, if any of there profits from people paying in more in premiums than they pay out in claims, most of them make it from investing the premium during the time periods before they make pays outs.

If Governor Blagojevich gets his way and insurance companies can not use a person health history or changes in deciding premium levels the end results with be that people that are at low or medium risk will end paying an even higher rate than should to balance out people that are in higher risk groups that are no paying even less than they should. Those people that are in the highest risk groups and could benefit the most from insurance will end up having even hard time finding companies to insure them since it will be more difficult for those companies to charge them anything approaching a fair premium and most of them will not want to pass on to much of the cost to lower risk clients that may responded to large increase in their premiums by getting rid of their insurance or moving to lower premium companies and no insurance company can stay in business just covering high risk clients. While the Governor may claim that he is working to help families in Illinois, in the long run if he gets his way he will be making it hard for them to get insurance all together if they are in high risk groups.

The insanity in Springfield continue today with the Illinois State Senate showing how much of waste of tax payers money these special sessions are. After meting for a minutes with many of the Democrat senators not in attendance, the session was adjourned it with conducting any business or taking any votes. Later on rumor surfaced that the Governor told State Senate President Emil Jones to tell his member not to bother showing up today or Monday, while the State House is expected to be in session both days.
The entire overtime session is joke and waste of tax payers money, there is going to be no budget until the Democrat and Republican leaders of the State Houses and the Governor come to an agreement. The Governor is going to have to give up most of his massive spending increase, because the State House is not going to pass them, and rightfully so. The Governor seems more interested in playing political games and trying to cause problems for his rival, Speaker of the State House Mike Madigan.

Normally I dont post two blogs on the same day, but the lastest insanity out of the Governor's office is so extreme, I had to mention. About an hour ago the Governor announced that he was going to sue State House Speaker Mike Madigan for not holding the Special Session when the Governor decreed it to be held, though it would seem that according to the State Constitution, the Speaker has no obligation to hold when the Governor demands to be held. Let it sink in for a moment, the Governor intends to waste taxpayers money on a lawsuit that he will most likely lose because the Speaker of the House, who is in his own party, didnt have a Special Session the extact hour he wanted?
Can anyone think of Governor that has this many problems with a State House control by his own party and gotten so little accomplished?

The budget debate in the Illinois General Assembly has continued to bare no fruit and has grown to even more or a debacle in large part because of Governor Blagojevich's lack of leadership. The Governor called a special session for the weekend and then tried to set the time, despite the lack ability of the Governor to set times for Illinois General Assembly, and then accused the Speaker of the Illinois State House, Mike Madigan, of breaking the law by setting a different time for the session than what he wanted. He also called The Speaker a Republican for opposing his massive spending and tax increase, thou I am sure no Republican would claim the Speaker as one of our own. The Governor also threaten to use the state police to force members to attend the special session, despite the fact that under the 1970 Illinois Constitution, our current one, the ability of the Governor to use the state police to force attendance came from a court ruling under the old Constitution and has no current standing under the new one. Relationship between the Governor's Office and The Illinois State House has fallen to the point, that a Republican member raised the issue of Impeach. The Governor's proposed lease of the lottery failed by a vote of 78-6 today in the House and a Democrat member of the State Senate said that it stood no chance of passing in the Senate despite the effort of the Governor's pawn State Senate President Emil Jones attempts to pass it. The Governor has also taken in insulting members of his own party that do not support his agenda, implying that they are bad Democrats, State Senator Mike Jacobs said it remained hims of when the Nazis would talk about good Nazis. Governor Blagojevich is so devoded of leadership that all he can do is restort to name calling and insulting leading members of is own party instead of working to produce a budget that controls spending, taxes and doesn't increase the State's debate burden.

In good news an article in the Springfield State Journal Register had an interview with a number of young minimum wage workers and they displayed a good grasp on the effects of an increase in the minimum wage on prices. They all said that they had mixed feeling about the minimum wage increase because they realized that it would lead to higher prices in the long run. Supports of the minimum wage increases like to point out to studies that show little or no job lose from hikes in the minimum wage, but the problem with the studies they use is that tend to look only at either people that are currently employed in minimum wage and see if they are fired or laid off or they look at the short. Longer run surveys show that increases in the minimum wage lower the amount of new jobs in that range that are created. If people want an example of this in their everyday life look at grocery stores like Kroger's or Wal-Mart and how they have added in self-checkers in their stores to replace regular check out isles, the reason for this is that the cost of installing and maintaining these machines is now less than that of hiring more checkers. Along with this many Union contracts have wages that are tied to the minimum wage level and any increase in the minimum wage pushes up these wages levels to regardless if increase in productivity justify the wage hikes.