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Report: Gutting Public Services to Balance the Budget Will Hurt, Not Help Illinois’ Economy

For the past several months, we’ve been speaking out about how children, families, and communities would be hurt by budget cuts proposed by both the Governor and the General Assembly. As advocates for children and families, we know that the state will be worse off if it cuts services for babies and toddlers with development delays, funding for our schools and universities, affordable child care for parents struggling to work and make ends meet, and families on the brink of homelessness.

In addition to immediately hurting Illinois children, families, and communities, proposed budget cuts are also harmful for our economy, hindering investments that really create jobs and build the foundations of economic prosperity. Today we released a new report explaining why.

Counter to what many people may believe, the economic literature shows that tax cuts have at best a negligible effect on stimulating economic activity or creating jobs. In fact, the evidence suggests that raising additional revenue to invest in improved public services like education, health care and infrastructure is one of the best ways we can spur our economy.

Why tax cuts aren’t effective stimulants for economic growth:

  • Businesses expand and create jobs when there is increased demand for their products, not when they receive tax cuts or incentives.
  • Tax cuts don’t boost employment among small businesses because so few are in a position to create jobs and those that are don’t earn enough for the tax cut to make a significant difference. Small businesses with any employees other than the owners make up only 11 percent of all businesses reporting income and tax cuts for the others wouldn’t come close to paying a full-time employee’s salary.
  • Tax cuts have very little power to influence business decisions because state taxes are not a significant cost of doing business. On average, state corporate income taxes make up only a quarter of one percent of corporate expenses—cuts to these taxes are incredibly unlikely to encourage businesses to add jobs.
  • Tax cuts reduce in-state spending, which is bad for the state’s economy. Dollars spent on public services go right back into local communities, creating ripple effects for the state, whereas portions of these dollars are kept in savings or “leak” out of the Illinois economy when individuals and businesses purchase out of state goods and services and pay higher federal taxes.
  • Tax cuts often lead to job losses. Reduced public spending often results in layoffs of public employees and the elimination of contracts with private-sector employers, resulting in fewer jobs overall.

Why raising the revenue needed to invest in public services is so important:

  • Businesses depend on public investments to succeed. Businesses require access to a skilled workforce, fire and police protection, court systems, well-maintained roads, highways, and bridges, sewage systems, snow removal, and flood control. Businesses rely on governments to make these long-term investments.
  • Investments in education are necessary to create a strong labor force that attracts employers with more high-skilled jobs. Workforce quality is one of the most important factors in businesses location and expansion decisions. Investing in quality early childhood education, top-notch schools, and strong colleges and universities is one of the best things states can do to grow their economies in the long run.
  • Public investments that improve quality of life are necessary to retain and attract high-skilled, high-demand workers. States that are committed to providing and able to pay for high-quality schools, cultural amenities, efficient public transportation, and recreational facilities better retain and attract skilled workers.
  • Poverty and inequality are economically costly. Poverty holds back our economy because of lost productivity, higher crime rates, and costs associated with poor adult health.

Budget and tax decisions lawmakers and the Governor make now will impact not only the immediate well-being of children, families, and communities across our state, but also our economic well-being for years to come.

We can’t strengthen our economy while cutting the very investments needed for a stronger economic future, like education, roads and bridges, health care, and public safety. Rather, we should raise the revenue needed to maintain and improve these vital investments.

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