After promising to allow the supposedly temporary income tax increase signed into law three years ago to expire in 2015, Governor Pat Quinn and most Democrats are preparing for an extension which may lead to deeper cuts. Despite the impact on Illinois households struggling to make bigger payments, Democrats have shown no signs of allowing the tax to roll back. Democrats and Republicans in Springfield who do not see eye to eye on whether an extension of the tax hike is necessary do agree that little preparation has been undertaken by both the Governor and lawmakers to cushion the state for a drawback in revenue.
The decrease could hit some areas significantly. In 2011, the new law increased personal income tax rates from 3 to 5 percent and corporate tax rates from 4.8 to 7 percent. The increase was intended to be temporary, beginning to decline in 2015 when rates would digress from 5 to 3.75 for individuals and from 7 to 5.25 for businesses bringing with it a massive decrease in state funding. Budgets approved since the increase have left little wiggle room for a tax rollback, setting the stage for egregious spending cuts.
Debating an Extension
The new fiscal year, which begins July 1, 2014, will bring in nearly $19 billion from the income tax hike; but by 2016, Illinois will be forced to cut its spending due to a nearly $4 billion revenue decrease. In the face of a pension liability close to $100 billion, Representative Lou Lang believes making the tax increase permanent is in the state’s best interest. His bill proposes using the continued extension to help pay down the liability as well as requiring employees to increase the amount they pay into their retirement. Other bills in the House propose decreasing benefits for state employees and making certain Illinois contributes its yearly financial requirements into the pension system.
But even with an approved tax increase extension, the state still faces enormous financial pressures that a tax increase alone cannot solve, such as Medicaid costs, health insurance and unpaid bills. Republicans not in favor of extending the tax increase argue that Illinois’ fiscal pressures are just too great a burden. Other lawmakers question how long of an extension is necessary.
A New Amendment
Some lawmakers believe an amendment to the Illinois Constitution would help solve the state’s fiscal crisis. The state’s Constitution currently provides for a flat tax. An amendment would allow the state to switch to a graduated income tax. Currently, the amendment has more than 15 sponsors but also requires approval by voters for passage.
Cutting Taxes, Creating Jobs
Far from amending the Illinois Constitution, most Republicans agree that cutting taxes and fees as well as job creation should replace the current tax increase in order to restore state revenue. In an effort to boost employment, the GOP has introduced a slew of bills aimed at growing Illinois business. The bills include such proposals as modifying workers’ compensation laws to decrease costs to businesses, making the research and development tax credit permanent and decreasing the income tax rates for individuals and corporations.
When questioned about an income tax hike extension, opinions from Central Illinois residents fall across the board. “The tax hike hasn’t lowered what we own in pensions, and Illinois is still in a big financial mess,” says Susan Staton of East Peoria. “But on the other hand, I can’t think of one other thing I know would work.”
“Amending the Illinois Constitution seems like a good solution in theory,” says Dan Finicle of East Peoria, “but can it get enough votes to pass? I dunno.”
“My family and I haven’t gained a thing from having to pay higher taxes,” says Sam, a mother of four and a Peoria resident. “The increase has hurt us. I say, get rid of it.”
Says Samantha Helm, Peoria Heights: “The tax hike may not have moved us forward much, but from what I can see it hasn’t moved us backwards. If it’s helping the state at all, I think lawmakers should vote to keep it intact.”