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ILLINOIS
SENATE DEMOCRATS PASS $5.4B TAX INCREASE
Illinois Policy Institute/Ted
Dabrowski
Vice President of Policy
Each
Illinois household would pay an additional $1,125 in taxes each year, on
average, under the Senate's tax-hike plan.
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 The Illinois Senate passed a series of tax hikes May 23 that will raise more
than $5.4 billion in new tax revenue. Senate Bill 9 hikes income taxes, expands
sales taxes, and increases franchise taxes.
The tax hikes are part of a record $37 billion budget that the Senate also
passed May 23.
The Senate approved the tax hike bill by a 32-26 margin, with no Republicans
voting in favor.
SB 9 does the following:
Hikes personal and corporate income taxes by $5 billion. The personal income tax
rate increases to 4.95 percent from the current 3.75 percent rate. The corporate
income tax rate rises to 7 percent from 5.25 percent.
Expands the sales tax to laundry and dry-cleaning services, as well as storage
and other services to bring in $55 million.
Raises $54 million in cable and satellite TV taxes.
Closes corporate loopholes worth $125 million.
The total $5.4 billion tax hike means each Illinois household will eventually
have to pay $1,125 in additional taxes annually.
Under the Democrats’ plan, new taxes will apply to many services previously
untaxed. And because the Senate has failed to pass a property tax reform
package, Illinoisans will continue to see their property taxes – the nation’s
highest – go up even more.
Because the income tax hike is retroactive to Jan. 1, 2017, personal income
taxpayers will pay an effective tax rate of 5.81 percent on their earnings for
the remainder of the year.
It’s not clear what reforms might come with the tax hike since the Senate
decided to break apart the so-called “grand bargain” budget legislation last
week. Previously, the Senate had hoped to package as many as 13 bills together,
meaning that if one bill did not pass, the entire package would fail.
Now, the Senate is voting on bills separately. That means it’s difficult to know
what spending reforms, if any, will be part of the $5.4 billion tax hike or the
budget.
But the fact that the Senate plans to spend a record $37 billion and to collect
$5.4 billion in new taxes means Illinoisans can expect little in the way of
reforms.
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Tax hikes over reforms
Illinois Senate Democrats are choosing to hike taxes again rather
than enact much-needed spending reforms.
This tax hike is reminiscent of 2011, when the General Assembly
increased personal income taxes by 67 percent and corporate income
taxes by 46 percent.
Illinois state government took in $32 billion in new tax revenues
from 2011 through 2014, which relieved pressure to enact real
spending reforms.
Lawmakers simply spent the money and left Illinois on a budgetary
cliff when the tax hike expired. And because the state’s structural
spending problems had gone unaddressed, and despite the $32 billion
in new tax revenue, by 2014, unfunded pension liabilities had
increased by more than $20 billion and the state’s bill backlog
totaled $7 billion.
Real budget solutions exist
More tax hikes will only drive more residents to flee the state and
punish those who can’t leave. And, as in 2011, tax hikes will only
perpetuate the state’s structural problems and deflate the pressure
to enact real change.
Illinois can no longer put off real spending reforms. Politicians
have to pass a balanced budget that actually solves the state’s
structural problems without tax hikes.
The Illinois Policy Institute has provided a reform road map –
Budget Solutions 2018 – that balances the budget without tax hikes.
The plan provides tax relief to struggling homeowners through a
comprehensive property tax reform package, begins an end to the
pension crisis through 401(k)-style plans, and makes changes to curb
bloated administrative expenses in higher education.
Most importantly, it doesn’t punish taxpayers for the political
failures of the past few decades.
Illinoisans have paid for politicians’ ineptitude and corruption
long enough. They deserve a reform budget and a state government
that finally spends within its means.
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