By Jamey Dunn with Caitlin Rydinsky contributing
Gov. Pat Quinn called on lawmakers to make the temporary income tax increase permanent during his budget speech today.
“The truth is, while we've taken some difficult steps to balance the budget, the issue of expiring revenue this year is a real challenge that will require another hard choice,” Quinn said in his speech to lawmakers today.
Quinn presented a budget that he says reflects the severity of cuts that would be needed if the current income tax rates, which are 5 percent for individuals and 7 percent for corporations, were allowed to step down in 2015. Under current law, the rates would go to 3.75 for individuals and 5.25 for corporations half way through next fiscal year. The reduction would take more than $1.5 billion in revenues with it. Quinn also presented an alternative budget that would include revenue from extending the tax rates, and it is this second plan that the governor advocates for. “Our plan is specific, concrete and responsible. It balances the budget and doesn't shirk our responsibility to our veterans, to our children, to our working families and to our most vulnerable citizens,” he said.
Quinn offered property tax relief and an incremental doubling of the Earned Income Tax Credit as potential sweetener that might help the income tax proposal go down with voters. Homeowners would lose their current property tax credit and it would be replaced with a flat $500 refund for each owner occupied property. Quinn’s budget office estimates that such tax relief would cost $1.3 billion annually. The current credit costs about $600 million. While some homeowners currently get a tax credit that is larger than $500, Quinn’s staff said that 92 percent homeowners would be better off under his proposal. Quinn’s plan would also increase the EITC from 10 percent of the federal credit to 20 percent at a rate of 2.5 percentage points per year. The increase would cost more than $200 million annually once it reaches 20 percent. Quinn and his staff are packaging his pitch to make the tax increase permanent as a reform of the state’s tax system. His proposal also included a five-year budget “blueprint” that calls for spending caps, a rainy day fund and cutting the state’s bill payment cycle down to 30 days.
The governor's Republican opponents say he is going back on the promise of a temporary tax increase. “Pat Quinn first promised the working people of Illinois he wouldn’t raise taxes by 67 percent. He broke that promise, taking away nearly a week's worth of pay for Illinois families. Then he promised his tax hike would be temporary. Today he broke that promise too and is doubling down on his failed policies,” Republican candidate for governor Bruce Rauner said in a prepared statement. “After five years of Pat Quinn’s failed leadership, we have record tax hikes, outrageously high unemployment, massive cuts in education and there’s still a giant budget mess in Springfield. It’s now or never to save Illinois. We can balance the budget without more tax increases, if we create a growth economy, and restructure and reform our broken government. That’s what I’ll do as governor.”
They claim that Quinn and other Democrats are trying to make the fiscal situation look worse than it truly is to justify keeping the current tax rates. So what people need to remember at the end of the day [is], it’s still a tax increase. Your income tax is going to go up from where it should have been come January 1,” Senate Minority Leader Christine Radogno said. She said that Quinn’s property tax relief plan is not all it's cracked up to be because it would eliminate the current property tax credit that homeowners already receive. So they would not get $500 in addition to their current break, but in place of it.
House Minority Leader Jim Durkin said after Quinn’s speech, “the Democrats who run this building do not tell the truth about taxes and spending.” He said that spending has increased in recent years.
Quinn’s staff is quick to point out that the governor never made any promises about whether he would seek an extension of the tax increase. They say that Quinn has signed budgets with billions of dollars of cuts to discretionary spending, but overall spending totals have increased some years because fixed costs, such as the required payments into the pension systems, have gone up.
His campaign issued a statement this morning claiming that Rauner’s “budget plan” would result in devastating cuts to education. Rauner has yet to give details on his vision for the budget, other than saying he wants to the tax increase to roll back and that he is not prepared to take the possibility of taxing retirement income off the table. Quinn said today that he would not support taxing retirement income or charging a sales tax on many “basic” services, such as haircuts.
In his speech, the governor tried to walk a fine line between highlighting the improvements he says have happened during his time in office and making the case that the budget situation is still unstable enough to justify hanging on to the current tax rates. “Illinoia is in stronger financial position now then we were five years ago because of the hard choices we have made,” Quinn said today.
Time will tell if this strategy will resonate with voters. Not surprisingly, a recent poll from the Paul Simon Public Policy Institute at Southern Illinois Carbondale found that 60 percent of voters oppose making the tax rates permanent. However, the majority of respondents liked major state services and were opposed to cutting them. Voters were also opposed to taxing retirement income or increasing sales taxes. The only new revenue source that more than half of those polled supported was expanding gambling.
Democratic lawmakers said today that they do not think voters are really aware of the progress that has been made in terms of the state's budget. “I think voters do not grasp how much progress has been made. It’s unfortunate to me that one budget address will not necessarily emblazon that in people’s minds,” said Northbrook Democratic Rep. Elaine Nekritz, who was one of the key players on recently passed changes to the state’s pensions systems. But she said that while voters may not be as aware of some of the things, such as pension reform and cuts to Medicaid costs, that have been done to help the state climb out of its budget hole, the bond rating agencies that determine the state’s credit rating do seem to have taken notice. “We are getting there. It took us a long time to get in, and I always said it’s going to take us a long time to get out.” Nekritz noted that the property tax relief in Quinn’s plan has the potential to be very popular with voters. “The number one thing I hear from constituents back home is (complaints about) their property taxes.”
The chairmen of House budgeting committees, which are considering deep cuts for their areas of the budget, said they were glad Quinn came out strongly for more revenue.
“I have always not shied away from the revenue conversation so I am encourage that the governor wants to look at ways to bring new revenue or additional revenue to the state,” said Lewistown Democratic Rep. William Davis, who is chairman of the House education budgeting committee. He said that K-12 education is currently facing a $900 million cut. Davis said he supports the concept of coupling tax relief for low-income workers and homeowners with a call for new revenue.
Marion Democratic Rep. John Bradley, who is chairman of the House revenue committee, said that he does not think that an extension of the tax rates has enough support to pass in his chamber at this point. “That’s going to be a difficult issue. That was a tough vote before. So I think a lot of people will keep an open mind to it but that’s a long way from happening right now.” He said that lawmakers should be open-minded about Quinn’s ideas. “He threw it out there, and I give him credit for putting ideas out there. So now the legislature will move forward.”
Quinn’s proposal has the backing of the legislative leaders in his party. “I would commend the governor for his political courage and honesty,” House Speaker Michael Madigan told Illinois Public Television’s Jak Tichenor, host of Illinois Lawmakers. Madigan said that he “demanded” property tax relief be included in a proposal to make the tax rates permanent. “I plan to support the governor’s position on the extension of the income tax increase,” said Madigan. “If we wish to continue to provide the level of services which we’ve become accustomed to for education and other purposes, then the income tax increase should be extended.” However, Madigan said he still supports his own “tax on millionaires” to fund education. The proposal is a constitutional amendment that would place a 3 percent surcharge on any income over $1 million. Madigan said he expects that the tax issue will be “resolved” before the spring legislative session ends.
Bradley said that his committee plans to move ahead with Madigan’s millionaire tax proposal “right away.”
“I think the governor made a really bold stand basically saying ‘we’re going to keep the taxes the way they are, but we’re going to give back a whole bunch of money in property tax relief,’” Senate President John Cullerton told Tichenor. He said the proposal takes the state’s high property tax rates into consideration while also deferring “draconian cuts.” Cullerton said he did not expect Republican support, which he called “unfortunate.”
Judging from the reaction to Quinn's speech from across the aisle, Cullerton’s prediction seems dead on. “The governor is more interested in making the argument that if there is not another massive tax increase that school children would be thrown into mobile homes and would be dying in the streets. That’s the governor’s arguments here. It’s an argument of hysteria. I think the governor, his first job is not to run for governor and create a campaign based on class envy, it’s to govern,” said Sen. Dale Righter, a Republican from Mattoon. He said that Quinn should do a line-by-line review of the budget to find savings. “I think he is going to discover in his own budget there are a lot of areas that he could save money and in then the words he speaks on lower income and middle income Illinoisans can actually come to prevision. Because he will find out he doesn’t have to take more money from families.”