Greising: The Next Test Ahead for The Governor

55% of people voted against J.B. Pritzker's "fair tax" proposal which was a crushing turnabout. The questions that remain are: What lessons does Pritzker draw from his first big loss and what does he do in response?

Gov. J.B. Pritzker (Jonathan Daniel/Getty Images)

BGA President David Greising writes a regular column for Crain's Chicago Business.

J.B. Pritzker campaigned for governor two years ago on the strength of his proposal for a graduated "fair tax" to replace Illinois' flat-tax structure. He won with 55 percent of the vote.

His proposal—touted as a tax hike affecting only the top 3 percent of the state's income earners—went before voters Nov. 3. Fifty-five percent voted against it.

It was a crushing turnabout for a first-time elected official. Among the questions now: What lessons does Pritzker draw from his first big loss, and what does he do in response?

Pritzker's initial comments, at a press conference the day after the election, signaled his frustration over the failure of his cornerstone policy objective. He accused his opponents of lying, stirred division between the wealthy and the rest, and depicted opposition as a Republican scheme. He focused particular scorn on the "billionaires" who bankrolled the opposition.

"The other side told the lies that they told. A lot of people believed them, and that's too bad. Now we're going to have to suffer the pain that they brought on," Pritzker said.

To cast the result that way is to misunderstand the depth of opposition to an idea that was key to Pritzker's election—then two years later was rejected by more voters than those who elected Pritzker in the first place.

What changed?

It didn't take "lies" from the opposition to make voters wary of giving the Legislature in Springfield freer latitude to raise taxes. Pritzker's plan initially targeted only the top 3 percent of the state's income earners, but the amendment offered no protections against a future middle-class tax hike.

Never mind the mystical, manipulative powers of the "billionaires" whom Pritzker villainized at the press conference. Voters could see on their own that the state's fiscal pressures would provide strong incentive for raising taxes at ever-lower income levels. And by targeting narrower numbers of voters, the political cost would be less than under the current system in which all voters are affected by a tax increase.

Pritzker singled out a "lie" that passage of the graduated tax amendment would lead to taxation of retirement income—currently tax-exempt under Illinois law. But it was State Treasurer Mike Frerichs, a Democrat, who put the issue at the center of the debate. Frerichs in June publicly acknowledged that passage of the graduated tax might clear the way for taxing retirement earnings. Frerichs later walked back that statement, but the damage was done.   

A reporter asked if voter distrust in government—and in House Speaker Mike Madigan in particular—figured into the result.

Madigan, more than any figure, is the architect of Illinois' fiscal distress: passing unbalanced budgets for decades; taking "holidays" on pension payments; systematically underfunding pensions in other ways. And now he is at the center of a broad federal investigation into public corruption in Illinois, though he denies wrongdoing.

Pritzker didn't bite on the Madigan question. He remains mostly loyal to a key political patron. But he promised action on ethics reform and acknowledged the trust problem more broadly. "There is enormous distrust in government all the way around," he said.

Whatever lessons Pritzker takes away from his setback, what matters most is what he does with the loss. Illinois' credit rating is just one notch above junk status, and ratings agency Moody's on Nov. 4 warned that the vote against the tax could have negative implications for the state's credit rating.

It was reassuring to hear Pritzker say he is determined to avoid a downgrade. Last spring, the Legislature gave him authority to sell bonds to cover state operating expenses if the "fair tax"—and its projected $3.4 billion in annual net new revenue—failed to pass.

Issuing those bonds likely would plunge Illinois' credit to junk status, and Pritzker would be wise to resist the temptation for a bond issue or any other gimmicks.

We can expect a tax hike: Lt. Gov. Juliana Stratton threatened a 20 percent income tax increase hike during the campaign; Pritzker has talked about 15 percent budget cuts, too. Those cuts are overdue, and with the loss on the amendment behind him, Pritzker will have new incentive to find them.

The governor has every right to be disappointed, even angry, that his most notable proposal failed with voters. The biggest test of his leadership as governor—how he responds in the aftermath of this major setback—is coming in the weeks ahead.