$8.6 Billion Tax Hike Plan Comes Under Fire in Illinois

Published July 1, 2007

By a 107-0 vote, Illinois state representatives sent a resounding message of disapproval to Gov. Rod Blagojevich (D), rejecting his plan to impose a tax on business gross receipts that would purportedly bring in more than $7 billion a year.

The May 10 vote was called by House Speaker Michael Madigan (D-Chicago) on a resolution asking members if they backed the governor’s proposal.

Though the vote was nonbinding, it sent a powerful message that state lawmakers will not allow Blagojevich’s plan to advance. The governor’s plan also calls for a $1.3 billion payroll tax on businesses that do not provide health insurance coverage to employees, for a total tax hike of $8.6 billion.

Blagojevich had spent two months touring the state, holding rallies, and broadcasting television commercials in which he called his tax scheme a “tax fairness” plan. He regularly demonized businesses by accusing them of putting their tax burdens on the backs of working families. He even evoked the rhetoric of fundamentalist preachers in claiming to be “on the side of the Lord” in trying to impose the largest tax hike in state history.

Speaker Sees ‘Regressive Tax’

Moments before calling the vote on the resolution, Madigan made his position clear, calling the governor’s proposal “a regressive tax” that ultimately would be paid by consumers and workers.

That is exactly the message a long line of experts have been sending for weeks, and that was delivered loud and clear one day before the vote on the resolution during a rare meeting of the House as a committee of the whole to hear testimony on the tax proposal.

Blagojevich addressed the lawmakers for two hours but apparently could not persuade any of them to support him, even though the General Assembly is dominated by fellow Democrats.

Not even Lt. Gov. Patrick Quinn, also a Democrat, backed the governor.

Quinn testified, “It’s a consumer tax. The little guy will end up paying.” He drew laughs when he quoted Benjamin Franklin’s famous dictum that the only sure things in life are death and taxes and then said, “Franklin didn’t say we should be taxed to death.”

Legislators Applaud Opposition

Trevor Martin, director of government relations at The Heartland Institute, also addressed lawmakers and drew applause, mainly from the Republican side of the aisle, when he said runaway spending and unfunded promises motivate terrible ideas like the proposed tax hike. (See Martin’s testimony, this page.)

Martin drew head shakes and grumbles of assent from lawmakers when he ended his presentation by reiterating the spending problem, saying:

“Nearly everyone has recognized the problem, including Governor Blagojevich himself when he famously accused you, Illinois lawmakers, of spending money like ‘drunken sailors.’ The governor wants additional revenue for more spending proposals and more promises–and to get there, he is asking you to support his proposal to implement a fundamentally unfair and regressive tax system.

“It’s time for everyone, including the governor, to sober up,” Martin said

Governor Insistent

In his testimony, Blagojevich promised he “would do everything in my power” to pass the tax plan. “If it means we are here all summer, I am determined to do that.”

Some lawmakers have been pushing a substitute plan to hike the state income tax from 3 to 5 percent and use some of the money for property tax relief, but Blagojevich forcefully declared his opposition to any hike in the state’s income or sales taxes.

“I will not raise taxes on people,” Blagojevich said. “I won’t do it today. I won’t do it tomorrow. I won’t do it next week, next month, next year. I believe it’s wrong, and this is not an issue I’m prepared to horse trade.”

But Martin and others who opposed the governor’s plan, including professional economists, explained businesses would pass on the costs of a gross receipts tax by raising prices, lowering wages and benefits, reducing hiring, laying off existing workers, or doing a combination of these things.

Nation’s Largest Tax Hike

The Blagojevich tax hike would be three times larger than any tax increase anywhere in the United States in the past decade, and possibly the largest state tax increase in history, according to the Washington, DC-based Tax Foundation.

If approved, the additional $8.6 billion in taxes would represent an increase of 30 percent in the Illinois state government’s annual operating revenues of $28.4 billion.

The Blagojevich plan has strong support from labor and government unions, including those representing public school teachers.

‘Bold Action’: Union Leader

“Now is the time for bold action,” said Ken Swanson, president of the Illinois Education Association, to lawmakers.

Blagojevich has promised to use the additional money to expand subsidized health care to 1.4 million state residents and send $10 billion more to public schools over the next four years.

His press office boasts in an official statement the education funding increase would be “three times bigger than any increase in state history.”

Steve Stanek ([email protected]) is a research fellow of The Heartland Institute and managing editor of Budget & Tax News.