Politicians in Illinois are considering one of the largest state income tax increases ever, according to a story in the Chicago Tribune. Democrats that control the state government in Springfield are working on a proposal that would raise income taxes by 75 percent, to help close a spending deficit of $13 billion this year.
The proposal would raise the tax rate from 3 percent to 5.25 percent through 2014, and then reduce it to 4 percent on a permanent basis. The increase would be the first for the state in two decades. Lawmakers are also proposing a higher corporate tax rate and a $1 increase on a pack of cigarettes.
The Democratic lawmakers are trying to get the measure passed before the new legislative session starts on Jan. 12, which includes new Republican members, who are expected to push for more cuts in spending than new taxes. Outgoing Democratic lawmakers are expected to vote for the measure because they won’t have to face voters in 2012.
The proposal was worked out on Thursday evening between Democratic Gov. Pat Quinn and Democratic leaders in the House and Senate. The lawmakers are scheduled to reconvene on Sunday afternoon to continue working on the proposal.
“The governor continues to have productive discussions with the Senate president and the speaker of the House to build a framework that will allow the state to pay its bills, stabilize the budget and strengthen the Illinois economy,” said Kelly Kraft, a spokeswoman for the governor’s budget office.
The group also is considering an increase in the corporate tax rate from 4.8 percent to 8.4 percent.
Critics say the tax increase will encourage more people to leave the area in favor of more taxpayer-friendly states elsewhere. “I think we’re very close to the tipping point,” said John Tillman, head of the anti-tax Illinois Policy Institute. “The tipping point will come when the exodus of businesses and the jobs they represent grows so big that the tax increases won’t make up for the revenue losses.”
As former lieutenant governor, Quinn took over in 2009 from former Gov. Rod Blagojevich, who was removed from office after his arrest on corruption charges. During last year’s his election campaign, Quinn promised to raise income taxes by no more than 33 percent. Senate Minority Leader Christine Radogno, said, “This is more than double that. To me, it’s kind of bait and switch. I think it’s wrong, and it’s wrong to do it in a lame-duck session.”
The new personal income taxes are expected to generate about $6.2 billion per year, the cigarette tax $377 million and the corporate tax $1 billion. The state is also planning to borrow $12 billion against future tax revenues to help pay its current bills, mostly incurred for state social welfare programs.
A portion of the income tax increase, .25 percent, and the full cigarette tax proceeds, would be designated for the state’s public schools, providing up to $700 million annually.