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 Gov. J.B. Pritzker’s push for a graduated income tax
constitutional amendment gets the attention, but lurking nearby are 18 other
proposed taxes and fees – all waiting to pull $6.9 billion away from Illinois
taxpayers.
The governor previously proposed nine tax and fee hikes worth $4.5 billion as
part of his budget address, including the graduated tax. His recently released
capital plan adds another 10 that would ask Illinoisans to pay $2.4 billion
more.
The graduated tax was the cornerstone of Pritzker’s campaign and now his
legislative agenda. Illinois Policy Institute research found that in order to
fully pay for his promised spending, his income tax hike proposal would lead to
middle-income families paying as much as $3,500 more per year.
Senate Democrats already passed their own different rate proposal for the
progressive tax, but even if Pritzker’s rates are actually enacted any middle
class tax relief would be more than wiped out by these other tax and fee hikes
the governor has proposed. All Illinoisans – not just “the rich” – would end up
paying more to Springfield.
Pritzker should drop all 19 plans to take more money from overtaxed Illinois
residents. The Prairie State already has one of the highest state and local tax
burdens in the nation. High taxes are the No. 1 reason people say they want to
leave Illinois, and given the state’s five straight years of population loss, it
cannot afford to alienate more residents.
Capital bill tax and fee hikes ($2.4 billion total)
Pritzker recently proposed a $41.5-billion plan called “Rebuild Illinois” to
increase spending on roads, bridges and other infrastructure. Unlike the
Illinois Policy Institute’s recently released plan to increase infrastructure
spending by $10 billion without tax hikes, Pritzker’s proposal includes no
reforms and relies only on asking Illinoisans to pay more. These are the plan’s
taxes and fees.
Double state’s motor fuel tax ($1.2 billion)
The preliminary capital plan relies on doubling Illinois’ motor fuel tax to 38
cents from 19 cents per gallon, effective July 1. This would make Illinois’
total gas tax burden the second-highest in the nation. Pritzker proposes
dedicating $650 million of the new revenue to local government infrastructure
spending while the state would keep the other $560 million.
Under the proposed gas tax hike, drivers filling up in Chicago would pay 96
cents in taxes and fees on a $2.46 gallon of gasoline – an effective tax burden
of 39%.
A draft of Pritzker’s capital plan states, “Illinois currently has one of the
lowest motor fuel taxes in the nation.” That is misleading.
When adding up all the layers of taxes and fees Illinoisans pay on gasoline,
they currently pay the 10th-highest average total state and local gas tax burden
in the nation, according to the Tax Foundation. The Prairie State is one of just
seven states where drivers pay general state and local sales taxes on gas
purchases. Illinois also adds state and local excise taxes after the sales taxes
are applied, meaning drivers are taxed on the taxes.
Nearly double maximum vehicle registration fee ($490 million)
The preliminary capital plan would also hike vehicle registration fees, imposing
a new cost structure based on the age of the car. The current annual fee of $101
would jump to $199 for vehicles 3 years old or newer, $169 for vehicles 4-6
years old, $139 for vehicles 7-11 years old, and $109 for vehicles 12 years and
older.
The $199 registration fee for newer vehicles would be higher than any
neighboring state and third-highest in the nation, according to Ballotpedia
research. Illinois’ vehicle registration fee was just $79 as recently as 2009.
15-fold increase in electric vehicle registration fee ($4 million)
The registration fee for electric vehicles would rise to $250 per year from $34
every other year.
New $1 per-ride tax on ridesharing ($214 million)
The plan would enact a statewide $1 per-ride tax on ridesharing services such as
Uber and Lyft. Chicago already levies a 72 cents per-ride fee on ridesharing
services.
New 7% tax on cable, satellite and streaming services ($150 million)
Chicago’s “Netflix tax” would expand statewide, with the state charging a 7% tax
on users of streaming services, as well as cable and satellite customers. None
of these services are currently taxed at the state level. Chicago currently
stretches the definition of its 9% citywide “amusement tax” to include online
streaming services such as Netflix and Spotify, as well as Playstation rentals.
Tax hikes on beer, wine and liquor ($120 million)
Taxes on booze would rise by up to 50%. The per-gallon tax on beer and cider
would rise to 27.7 cents from 23.1 cents; the per-gallon tax on wine would rise
to $2.05 from $1.39, and the per-gallon tax on distilled liquor would rise to
$12.60 from $8.55.
Illinois’ alcohol excise taxes already stick out among Midwestern states,
leaving businesses near state borders at a disadvantage. Bob Myers, president of
the Associated Beer Distributors of Illinois, estimated Illinois loses out on a
“bare minimum” of $8 million per year to cross-border alcohol purchases.
New statewide parking garage tax ($60 million)
Daily and hourly garage parking would be hit with a 6% tax while monthly and
annual garage parking would come with a 9% tax. Chicagoans already pay among the
highest parking rates in the country. The state does not currently tax garage
parking.
Doubling the real estate transfer tax ($34 million)
The proposal doubles the real estate transfer tax on non-residential real estate
to $1 from 50 cents per $500 in value.
Capping traded-in property sales tax exemption ($60 million)
While the state currently exempts sales tax on sales of new items up to the full
value of traded-in property, that exemption would be capped at $10,000.
Increasing video gaming terminal tax ($90 million)
The state now imposes a tax of 30% on net terminal income, but this tax would
increase under a structure that the administration did not reveal in its capital
proposal.
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“Fair tax” hike with no middle class protections
($3.4 billion)
Pritzker’s plan to scrap Illinois’ constitutionally protected flat
tax and replace it with a graduated, or “progressive,” income tax
system is the largest single tax hike he has proposed.
Pritzker’s progressive income tax plan would
slightly lower the effective income tax rate on earnings under
$250,000 and hike them significantly after that, topping out with a
7.95% tax on income over $1 million. But rather than a marginal rate
on that income, Pritzker’s plan uses a rare tax tool known as
“recapture,” where those who earn over $1 million would instead see
a much higher flat tax on all of their income – effectively adding
an $8,565 tax bill to the first dollar earned over $1 million.
Pritzker’s proposed rates would almost certainly be short-lived, as
estimates using the most recently available IRS data reveal his
proposal would actually raise just $1.4 billion to $2.4 billion,
while his spending promises total $14 billion to $19 billion.
Nevertheless, Pritzker is claiming his tax change would raise $3.4
billion – and rates could be increased to the level necessary to
actually raise that amount.
The last state to implement a plan similar to Pritzker’s was
Connecticut in 1996. State lawmakers made the same promises of
middle-class tax cuts, property tax relief and increased spending on
social services. Those promises were broken. In fact, the typical
Connecticut family has seen a 13% hike in their income tax rates
since the implementation of Connecticut’s progressive tax, property
tax burdens increased 35%, and the poverty rate increased 47% during
the 10 years following the passage of their progressive tax.
In order for the progressive tax to take effect, lawmakers would
first need to approve an amendment to the Illinois Constitution
removing the state’s flat income tax protection, and voters would
then need to approve that change in November 2020 – either by a 60%
majority of those voting on the ballot question or more than 50% of
those voting in the election.
Tax and fee hikes from budget proposal ($1.1 billion total)
Beyond the “fair tax,” Pritzker proposed a litany of other new tax
and fee hikes in his first budget proposal.
Tax on managed health care organizations ($390 million)
Pritzker’s proposed budget calls for a new tax levied on managed
care organizations generating an estimated $390 million. While
budget documents from the administration focus on organizations
involved in Medicaid-related services, federal law requires the tax
to apply uniformly to private sector managed care organizations.
Taxing such organizations could increase premium costs for
consumers.
Tax sports gambling ($200 million)
Pritzker proposes legalizing and taxing sports betting online and at
select locations across the state. Between license fees and new
taxes, the governor estimates this would raise $200 million in
revenue for fiscal year 2020.
Recreational cannabis tax and licensing regime ($170 million)
The governor’s budget proposal calls for selling marijuana licenses
at $100,000 each for an estimated $170 million in new revenue. In
comparison, a liquor license costs $750.
Retailer tax hike ($133 million)
Pritzker’s proposed budget reduces a tax credit available to
retailers for collecting sales tax on behalf of the state,
generating an estimated $75 million for the state and $58 million
for local governments.
Video gambling tax hike ($89 million)
Companies with video gaming terminals in Illinois would see marginal
net income from those terminals above $2.5 million a year taxed at
50% rather than the current 30%, bringing in an estimated $89
million.
Increased cigarette tax ($55 million)
Illinois’ cigarette tax is already among the highest in the region,
driving sales across state lines. Pritzker’s budget proposes hiking
the cigarette tax rate by 32 cents per pack, generating an estimated
$55 million.
Plastic bag tax ($19 million to $23 million)
A new 5-cent statewide tax on plastic bags would hit up Illinois
shoppers for as much as $23 million in state revenue under
Pritzker’s budget proposal. Two bills currently in the General
Assembly would impose a per-bag tax of 7 cents or 10 cents,
respectively. No U.S. state currently collects a statewide plastic
bag tax.
New e-cigarette tax ($10 million)
Pritzker’s budget proposal calls for taxing e-cigarettes statewide
at 36% of the wholesale price.
Add them all up, and Illinoisans’ total tax and fee bill is $6.9
billion
Illinois’ economy and taxpayers cannot withstand more tax hikes.
To balance Illinois’ budget and pay off debt, Pritzker should
instead look to structurally reform the cost drivers of Illinois’
budget and debt problems: the rising costs of pensions and
government worker health insurance. The Illinois Policy Institute
recently released Budget Solutions 2020, a plan to balance Illinois’
budget immediately, pay off its debt and cut taxes in fewer than
five years.
While it’s true Illinois should invest more in its infrastructure,
there are credible concerns that Pritzker’s administration hopes to
trade capital projects for votes on his plan to scrap Illinois’
constitutionally protected flat tax and make way for a state income
tax hike. Not only is it wrong to hold infrastructure spending
hostage to force through an economically harmful tax hike, but
taxpayers will get far less value from a capital bill if projects
are selected for political reasons rather than based on a neutral
cost-benefit analysis.
The Illinois Policy Institute’s no tax hike capital plan offers an
alternative. By adopting efficiency reforms, focusing on maintenance
infrastructure rather than new projects and dedicating existing
revenues to transportation, lawmakers can deliver on the promise of
repairing roads and bridges while protecting taxpayers’ wallets.
Pritzker can give Illinoisans 19 more reasons to leave, or he can
fix state finances and fix the roads without tax hikes. It shouldn’t
be a difficult choice.
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