Eschewing Supply Side to Spur Economic Growth
Release: October 18, 2021
In response to the economic challenges created by the pandemic, elected officials in both parties have expressed the desire to pursue fiscal policy initiatives that will help spur private sector growth. Historically, two very different approaches have been taken to stimulate the economy by changing fiscal policy—one focuses mostly on growing private sector demand by increasing public sector spending, while the other focuses primarily on growing private sector supply by cutting taxes.
The fiscal policies taken to boost demand through enhanced spending generally involve increasing investments in core public services and infrastructure, as well as providing direct income supports to low- and middle-income families. These income supports include a number of initiatives, covering everything from enhanced unemployment compensation benefits, to targeting tax relief solely to low-and middle-income workers—precisely because those workers are likely to spend any such tax relief on purchasing consumer goods and services.
On the other hand, the use of tax cuts to boost the economy has typically involved providing either general tax relief to all individuals and corporations—which initially was referred to as “Supply-Side” economics—or targeting tax relief to primarily benefit corporations and wealthy individuals—which initially was referred to as “Trickle-Down” economics. Interestingly, neither Supply-Side nor Trickle-Down is really an economic theory. Instead, both are concerned with how fiscal policy actions impact private sector behavior. Over time, the distinction between these two approaches has blurred, and they are now both generally referred to as “Supply-Side” economics.
Read CTBA’s most recent report to find out more about the impact of Supply-Side policies on the U.S. economy.
Fully Funding the EBF: Volume IV
Release: September 23, 2021
Contrary to what the governor proposed in the FY 2022 General Fund budget proposal, K-12 funding under the Evidence-Based Funding formula (EBF) resumed funding of the $300 million Minimum Funding Level in the FY 2022 Enacted General Fund Budget, as it had in FYs 2018,2019, and 2020. This is certainly better than being held level with the prior fiscal year, as was done in FY 2021.
Volume IV of the Fully Funding the EBF series makes some minor adjustments to CTBA’s model to align more closely with the Illinois State Board of Education’s methodology and reporting. This change is made to the overall Adequacy Gap funding level (changes from 100% to 90% to accommodate for Federal funding). This change in methodology is applied to the four scenarios found in the Fully Funding the EBF series Volume Three.
Analysis of Illinois' FY 2022 Enacted General Fund Budget
Release: July 22, 2021
Shortly after the FY 2022 General Fund budget proposal in February 2021, the sobering economic forecast significantly changed. On March 11, 2021, President Joe Biden secured passage of the American Rescue Plan Act (“ARPA”). ARPA came on the heels of various other federal relief initiatives that passed in 2020—most notably the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). When considered together, nearly $12 billion in federal relief funding has been designated to cover state-level spending on core public services in Illinois over fiscal years 2021, 2022, 2023, and 2024.
Yet, despite obtaining the new federal and state funding, the FY 2022 Enacted General Fund Budget that passed into law (“P.A. 102-0017”) increases overall net spending on core services in FY 2022 by just $586 million over FY 2021 levels, in nominal, non-inflation-adjusted dollars. That is notable for one simple reason: the total year-to-year increase in General Fund spending is less in nominal dollars than the $655 million in new recurring revenue the state raised by eliminating the tax expenditures—and is significantly less than the $3.8 billion in federal relief funding the state utilized in FY 2022. Indeed, after adjusting for inflation, total net General Fund spending on services in FY 2022 is scheduled to be only $24 million—or 0.1 percent—more in real terms than it was in FY 2021.
American Rescue Plan FAQ: Illinois
Release: July 12, 2021
On March 11, 2021, the Biden Administration secured passage of the American Rescue Plan Act (“ARPA”), which provides fiscal relief designed to counter economic issues created by the pandemic. ARPA is considerable in size and provides a total of $1.9 trillion in federal aid for state and local governments to use to support the provision of various core public services such as healthcare, human services, and education, as well as to infrastructure.
Given the significant federal aid flowing through ARPA, CTBA has compiled the following answers to some of the most frequently asked questions about that legislation and how it will impact Illinois.
Recommended Changes to Illinois Tax Expenditures, FY 2022
Release: May 13, 2021
To address some of the shortcomings that have created the structural deficit in the state’s fiscal system, the FY 2022 GF Proposal includes a number of initiatives designed to generate new revenue for the General Fund. Key among these are initiatives that would:
(i) eliminate or modify a number of tax breaks—which are more accurately described as “tax expenditures”—the state currently grants to corporations, to generate some $932 million in General Fund revenue for FY 2022; and
(ii) “decouple” Illinois from tax expenditures granted to businesses by the federal government, that cannot be expected to generate any benefit in the state, but would cause the loss of anywhere from $500 million to $1 billion in annual General Fund Revenue.