Underscoring Illinois’ bleak financial outlook, one of the state’s most prominent tax watchdog groups says it’s time to bite the bullet and raise the personal income tax rate by 66 percent.
It’s unclear how much traction the Civic Federation’s tax hike push will get in Springfield, especially in an election year. Embracing tax increases is typically seen as the political kiss of death for officeholders.
Even so, the business-oriented group’s reluctant full leap onto the more-tax bandwagon is a sign of mounting pressure on Gov. Pat Quinn and lawmakers to avoid a repeat of what happened last year. That’s when they cut a budget deal that papered over the financial mess in the short term but has now left state books in even worse shape.
Historically averse to tax hikes, the federation said the budget situation has become so dire that it now supports increasing the state income tax rate for individuals from the current 3 percent to 5 percent.
As part of a broad package of budget-balancing proposals, the organization also suggests bumping the corporate income tax rate from 4.8 percent to 6.2 percent and eliminating an expensive tax exemption for retirement and Social Security income. It also said spending on most programs outside of Medicaid and school aid should be rolled back to 2007 levels.
Federation President Laurence Msall called the recommendations “painful and distasteful” but said dramatic steps are needed to save the state from years of financial mismanagement that has produced a record $13 billion deficit and threatens funding for an array of vital programs.
“Illinois’ financial crisis was not created by the great recession,” Msall said. “It is a self-made crisis fed by a lack of responsibility.”
Last spring, Quinn briefly pushed a 50 percent increase in the income tax rate as the centerpiece of a deficit reduction package. He backed down after lawmakers balked at the notion of raising taxes or making more significant spending cuts.
Since then, the deficit has only grown, and the state is experiencing increasing difficulty in paying its bills — including to school districts and transit agencies that are now warning that jobs and services are in peril.
Though he declined to go into specifics, Quinn signaled last week that the new budget he’s scheduled to unveil March 10 once again will include tax hike proposals.
Unlike the federal government, the state must approve balanced budgets each year, but “balanced” more often than not has become a term of art. Year after year, state officials have been at their most creative making ever-bigger deficits disappear on paper but not in reality.
Msall said his group’s proposal, if adopted in full, would lop more than $10 billion off the deficit for budget year 2011. He also conceded that some of the red ink would have to be rolled into the following budget year before being erased in its entirety. It estimated the income tax hikes alone would raise $6 billion in new state revenue, while another $1.6 billion would be generated by requiring retirees for the first time to pay taxes on retirement income.
Msall said the rescue plan is predicated on achieving more than $2 billion in savings through the spending rollbacks as well as a sweeping overhaul of state-run pension systems that would require employees to pay more for benefits and reduce benefits for new state workers. Public employee unions have long resisted such ideas.
