By Bethany Jaeger, with Hilary Russell contributing
House Democrats maintain that without Republican votes, an income tax increase is likely to fail. And the back-up plan isn't pretty.
House Democrats did advance a two-year income tax increase and a phased-in earned income tax credit for low-income families this morning. Senate Bill 2252 would net about $4.5 billion for state coffers, House Majority Leader Barbara Flynn Currie said in committee. The personal tax rate would increase from 3 percent to 4.5 percent, while the corporate rate would increase from 4.8 percent to 7.2 percent, ending in 2011. The earned income tax credit would phase in from 5 percent to 7.5 percent the first year, followed by an increase to 10 percent the second year. It would be permanent after that.
Without new revenue, House Democrats could resort to sweeping money out of dedicated funds and refinancing debt as the only new revenue sources for a total of about $4.5 billion, according to Assistant Majority Leader Frank Mautino. That would result in state agencies getting about 80 percent of their annual budgets, and only about half of the grants for community services would get funded.
“So it’s not a partial budget,” Mautino said after committee. “That’s how much money is approved, and that’s how much they will get.”
Currie said during committee that the state is more than $7 billion out of whack today. And even if a temporary income tax increase generated $4.5 billion, the General Assembly would still have to curb spending.
“If anybody thinks this is a way to duck out of our responsibility to tighten our belts, the answer is, it doesn’t make it. But it will help prevent the kinds of disasters that real people face if we don’t do something to stem the tide.”
The lack of new revenue, she said, would result in a 68 percent cut across the board for state agencies. That would affect everything from childcare programs for low-income working parents to services for the developmentally disabled and mentally ill.
All Republicans in the committee voted against the tax increase and sided with business groups, which argued that the proposal would give Illinois the second highest tax rate in the country and further discourage businesses from investing in this state. Todd Maisch of the Illinois Chamber of Commerce added that the income tax increase would not address the deeper problem. “Between pensions and government-funded health care, if you don’t do anything to address those issues, you’re going to be back here in two years still needing another tax increase,” he said during committee. “The drivers of the costs are going to outrun the revenues you’re going to get from the tax increase.”
Rep. Mark Beaubien, a Barrington Hills Republican, said Illinois has gone down the road of a temporary tax increase before. “I think the citizens know where that’s going to go in the future.” The General Assembly levied temporary income tax increases twice in the 1980s. The 1989 increase was made permanent under then-Gov. Jim Edgar.
Meanwhile, the House committee also advanced a measure that would intend to soften the blow for retailers if the state increased the sales tax on cigarettes by a $1 over two years, as proposed in SB 44. Rep. John Bradley, a Marion Democrat, sponsored SB 415 in response to retailers' concerns, which we wrote about before. It would only take effect if the cigarette tax increase were approved.