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Illinois Tax Hike: State Lawmakers Close To Passing Massive Tax Boost

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SPRINGFIELD, Ill. — Democrats in the Illinois House voted Tuesday to raise income taxes by two-thirds in a desperate and politically risky effort to end the state's crippling budget crisis.

The legislation, which now goes to the state Senate, would temporarily raise the personal tax rate to 5 percent, up from 3 percent now – a 66 percent increase. Corporate taxes would climb, too.

"The time for casting aspersions, pointing fingers, playing the blame game, that's over," House Majority Leader Barbara Flynn Currie said in sharp exchange with a Republican lawmaker.

"This mess is a mess that is the responsibility of all of us as Republicans and Democrats, of several different governors and part of the mess isn't even anybody's fault," Currie said, citing the national recession.

The higher taxes would generate about $6.8 billion a year, Gov. Pat Quinn's office said. That would be a major step toward filling a budget hole that could hit $15 billion this year.

In sheer percentage terms, the proposal could be the biggest tax increase on the long list of increases states have passed while grappling with recent economic woes.

The increase would mean an Illinois resident who now owes $1,000 in state income taxes would owe $1,666 at the new rate, then $1,333 when the tax rate drops to 4 percent after four years.

The proposal passed the House 60-57, the bare minimum needed for it to move on to the Senate. With a new General Assembly beginning Wednesday at noon, senators were expected to vote on the measure later Tuesday night.

Republicans rejected the increase and accused Democrats of doing irreparable harm to Illinois families and businesses. Business leaders decried the proposal as a job-killer.

"Based on this particular legislation the only businesses that will benefit are the moving companies that will be helping many of my members move out of this particular state," Gregory Baise, head of the Illinois Manufacturers' Association, said earlier in the day as the measure advanced out of committee.

Quinn aides say the Chicago Democrat supports the tax increase, although it is higher than what he had proposed during his tough campaign to be elected to his first full term in November.

Democratic Rep. Greg Harris said if Illinois didn't pass a tax increase to rescue its finances a host of state agencies would have to close completely and the state could trigger a "cascade" of public and private defaults.

"The wolf is at the door, ladies and gentleman," Harris warned fellow lawmakers.

To win support from some fiscally conservative lawmakers, legislative leaders did agree to impose strict caps on state spending growth. If spending exceeds 2 percent a year, the income tax increase would be canceled, officials said.

"We're really trying to handcuff ourselves and the governor in our spending," said Illinois Senate President John Cullerton, a Chicago Democrat.

Cullerton said the limited growth allowed by the cap would almost certainly be eaten up by rising pension and Medicaid costs, forcing spending cuts in many other areas of government.

Money from the increase will be enough to balance the annual budget and begin chipping away at a backlog of unpaid bills. Illinois regularly falls months behind in writing checks to schools and universities, businesses that build roads or rent offices to the state, and organizations that provide a vast array of social services.

Democrats wanted to accompany the income tax increase with a boost in the cigarette tax but a proposal to more than double the tax to $1.98 per pack failed. Lawmakers could bring the issue back for another vote.

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The bill is SB2505.

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Online: http://www.ilga.gov