CHICAGO - Illinois Comptroller Judy Baar Topinka on Friday warned that the economic impact for the state budget could exceed $1 billion if Congress and the President are unable to reach an agreement to prevent the federal government from going over the "fiscal cliff."
Just more than three days before automatic federal spending cuts and tax increases are triggered, Topinka estimated that the combination of expected Social Security payroll tax and income tax increases is expected to hit Illinois pocketbooks, and ultimately lower the state's tax revenues by up to $500 million.
Even more staggering, the fallout from the fiscal cliff threatens to push the state into recession, Topinka said.
"Illinois is already spiraling in a mix of unpaid bills, unfunded liabilities, interest costs and credit downgrades," Topinka said. "By going over the fiscal cliff, the federal government will essentially be wrapping an anchor around our ankle - and the consequences will be devastating."
Specifically, Topinka noted that a scheduled 2 percent increase in the Social Security payroll tax rate could cost Illinois residents up to $6 billion in take-home income, which could translate into millions in lost sales tax revenue as consumers reduce their spending to compensate. In addition, across-the-board increases in federal income tax brackets would have a similar impact, but on a larger scale. Combined, the state could lose $400-$500 million in sales tax revenue alone this year.
If the state falls into recession as a result of the fiscal turmoil, spending and employment levels, and ultimately income and sales tax revenues, would fall further. Automatically-triggered spending cuts would further darken Illinois' fiscal picture, with the state losing more than $300 million in federal grants for education, public housing, and nutrition programs for low-income women and children alone.
The potential fiscal consequences come as the state is already saddled with more than $7.4 billion in unpaid bills at the Comptroller's Office, and an additional $2.3 billion at state agencies.
"Illinois has a big enough mess to clean up as it is - we don't need any more 'help' from Washington," Topinka said. "Yet, the high-stakes game of 'chicken' continues in our nation's capital. It needs to end immediately, before we all lose."