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 A chaotic final week of legislative session in Springfield has
resulted in a flurry of tax hikes and new spending.
Illinois state representatives introduced and passed a $45 billion
infrastructure plan on June 1. It will hit up drivers almost immediately,
pending expected approval from the Illinois Senate and Gov. J.B. Pritzker.
Revenue to pay for that plan comes from higher taxes on gasoline, vehicle
registration, cigarettes, parking and more.
Senate Bill 1939, which hikes the state’s motor fuel tax and vehicle
registration fees, was approved by a bipartisan 83-29 vote in the Illinois House
of Representatives. Senate Bill 690, which hikes taxes on cigarettes and vaping,
as well as parking garages, passed on a bipartisan vote of 87-27. SB 690 also
increases the number of casinos in Illinois, legalizes sports betting, and hikes
taxes on video gaming, among other changes.
Twenty House Republicans voted for the gas tax hike, including House Republican
Leader Jim Durkin. GOP members justified that vote as part of a larger deal that
included reinstating the manufacturer’s purchase credit, expanding tax
incentives for data centers and eliminating Illinois’ $200 million franchise tax
in 2022. Seven House Democrats voted “no” on the gas tax hike. House Speaker
Mike Madigan did not vote.
Doubling Illinois’ gas tax
The plan doubles Illinois’ state gas tax to 38 cents from 19 cents per gallon,
which will vault the total tax burden on Illinois gas beyond states such as New
York and California to second-highest in the nation, according to 2018 data from
the Tax Foundation. The increase will be effective July 1.
The state motor fuel tax will also be tied to inflation, meaning it will
automatically rise in future years without lawmaker approval. The hike will cost
the typical driver around $100 more in its first year.
The state-level gas tax hike is estimated to generate an additional $1.2 billion
– split between the state ($560 million) and local governments ($650 million).
In addition to the state-level increase, the bill allows Chicago to increase its
local gas tax by 3 cents. It allows Lake County and Will County to impose a gas
tax of up to 8 cents per gallon. And DuPage, Kane and McHenry counties would be
able to double their 4-cent-per-gallon gas taxes to 8 cents. These additional
hikes may end up making Illinois’ average state and local gas tax burden the
highest in the nation.
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As of May 13, the wholesale price of gasoline in
Chicago was $2.46 per gallon. If Chicago City Council approves a
local increase on top of the state’s increase, drivers at Chicago
filling stations would pay 99 cents in taxes and fees on each gallon
of gasoline – an effective tax burden of more than 40%.
Hiking vehicle registration fees
Drivers will see a $50 annual increase in vehicle registration fees
for most vehicles next year – up to $148 from $98. Illinois’ vehicle
registration fee was just $79 as recently as 2009. Most other
vehicle registrations, such as buses, trailers and oversized
vehicles, will see a $100 increase.
$1 per pack cigarette tax hike
Chicago already imposes the highest cigarette tax in the nation, at
$7.17 per pack as of 2016. Illinois charges the fourth-highest
cigarette tax in the Midwest at $1.98. The capital plan hikes this
tax by $1 per pack.
According to the Illinois Department of Revenue, tax dollars
generated by cigarette sales have declined every year since fiscal
year 2015. Cigarette taxes are highly volatile, as shown in the Tax
Foundation’s recent analysis of cigarette tax revenues from 1955 to
2018 across all 50 states. This can be attributed in part to a
general decline in smoking, as well as the ability of smokers in
high-tax states to buy smuggled tobacco from bordering low-tax
states.
Parking tax hikes
Parking garage users would see an increase in their taxes starting
Jan. 1, 2020. For hourly or daily parking garages, taxes would go up
by 6%. Monthly or annual parking spaces would be slapped with a new
9% tax.
Alternative plan
The Illinois Policy Institute outlined a plan in May showing how
Illinois could finance $10 billion in new capital spending without
tax hikes.
Illinois could achieve this by focusing on maintenance
infrastructure, reforming costly prevailing wage mandates and a more
efficient prioritization of projects, while dedicating revenue from
legalized sports betting and sales taxes on gasoline to
transportation infrastructure.
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