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The choice for governor

The Illinois race for governor this year will be dominated by the problems of the state's economy. In one sense, Illinois is still a rich and prosperous state that has a per-capita income well above the national average, with a world-class city, a number of successful firms and a strong agricultural sector. However, the state has lost its dynamism as evidenced by its slow growth rate and high unemployment level. Illinois' unemployment rate is nearly two percentage points above the national average, exceeded only by Nevada and Rhode Island. Illinois trails even the state of Michigan, which was devastated by the implosion of the automobile industry during the Great Recession.

Gov. Pat Quinn (D) and challenger Bruce Rauner (R) have divergent views about the path to recovery, but the basic problem is that no one knows precisely the causes of Illinois' woes. Clearly the state has a long history of budget problems and lack of fiscal discipline. However, the state's problems are not fully explained by budget issues. Manufacturing has not benefited much from the rebound of the automobile industry that has helped nearby states such as Michigan, Indiana and Ohio.

Quinn's program involves the continuation of the state's supposedly temporary income increase along with traditional Democratic policies such as a higher minimum wage and the closure of so-called tax breaks for business. To Quinn's credit, he recognizes that the state needs the additional revenue from the temporary tax increase, but his plan to continue the increase includes additional spending such as property tax credits and increases in the earned income tax credit that would prove very costly.

Rauner opposes the continuation of the temporary income tax increase, but is relatively silent on how the state will deal with its budget problems without the extra tax revenue and the severity of the spending cuts that would be necessary. As a non-politician with a successful business and investment background, he would likely change the state's perceived hostility to business.

Unfortunately, neither of these approaches is likely to have an immediate impact on the state's economy. A couple of election cycles ago, former Gov. Jim Edgar was asked why he would not run for governor again. His answer was that he was not afraid of losing the race. Instead, he was afraid of winning, given the magnitude of the state's budget problems. Little has changed today.

While there is no silver bullet that will reverse Illinois' economic decline, there are long-run policies that are needed, but these are not a popular campaign issue. The state needs to continue the temporary income tax increase. Even better, reform of the income tax and sales tax could raise the additional revenue more efficiently than the current system. This revenue should not be used for additional spending, but should be accompanied by greater spending discipline to get the state's structural deficit under control. More revenue and slower spending growth are not usually winning campaign strategies, but this is what the state needs.

The state should concentrate on achieving fiscal equilibrium by keeping tax rates reasonable and predictable while providing infrastructure and education services that promote growth. Redistribution policies such as millionaire taxes and constitutional amendments to provide graduated tax rates never win political approval, but divert attention from the more fundamental issues. They also undermine the confidence of the business sector.

Quinn or Rauner as the new governor will face daunting challenges. Both would face a difficult situation in getting their plans approved by the General Assembly and neither of their plans is likely to have an immediate impact on the state's economy. It will be a long and possibility unpopular process to get the state on a more positive path, but it is vitally necessary.

Economist J. Fred Giertz is on the faculty of the University of Illinois' Institute of Government and Public Affairs. He can be reached at 217-244-4822 or jgiertz@uillinois.edu.

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