CARBONDALE - Talk of a state deficit is political fodder every election cycle, but an economic expert says Illinois' budget issues are more critical this year than ever before.

"It's come to a head this year," said Fred Giertz. "This is the most active and energetic debate in Illinois in 28 years."

Noted economist Giertz spoke at Southern Illinois University Carbondale on Tuesday, touching on under-funded state pension plans and Gov. Rod Blagojevich's proposed gross receipts tax, which he criticizes as an "overreaction" to a longtime thorn in the state's side.

Giertz is executive director of the National Tax Association and professor of economics at the University of Illinois Institute of Government and Public Affairs in Champaign-Urbana. He also authors a monthly column in the Southern Business Journal, a magazine published by The Southern Illinoisan.

A gross receipts tax proposed by the governor would raise an estimated $7.6 billion for the state, but business owners have argued that it overtaxes small businesses.

Giertz described the GRT as a "cascading tax" that would draw steam from each additional level of taxing that occurs. Items manufactured within the state would be taxed at every phase, Giertz said.

"Activities that have a lot of exchanges will be taxed very heavily," Giertz said.

Services sold within the state would have a 1.95 percent tax rate; goods would demand a .85 percent tax rate.

A solution to the state's tax problem has two necessities, Giertz said: It won't be painless, and it requires all potential avenues to be open.

"You should have all options on the table," Giertz said.

The economist referenced Illinois Senate and House Bill 750, which would increase income taxes and expand the sales tax base to include services.

Giertz said a proposal he sees as workable is a 3 to 3.5 percent increase in income tax and a 4.8 to 5.6 percent increase in corporate tax. The tax base should be broadened to include not only goods such as clothes but services such as dry-cleaning, he said.

However the state chooses to fix its financial woes, Giertz said he believes the solution cannot be pushed back any longer.

"We can't go on the route we're following now," Giertz said. "It has to end. The question becomes: How do we want it to end?"

ashley.wiehle@thesouthern.com

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