Ill. Governor Adds to Record Tax Hike Plan

Published June 1, 2007

Illinois Gov. Rod Blagojevich (D) has tacked more than $1 billion onto the record tax hike proposal he announced during his State of the State address on March 7.

Three weeks after announcing a plan for a gross receipts tax on businesses to raise more than $6 billion, and a $1 billion payroll tax on employers who do not provide health insurance benefits, Blagojevich announced plans to increase tax rates over his original proposal to take an additional $1.3 billion in revenue.

Blagojevich said he wants to use the additional $1.3 billion to reduce local property taxes.

The new Blagojevich proposal would raise an estimated $8.6 billion more in tax revenue over the current fiscal year’s take, a 30 percent increase in the state government’s annual operating revenues of $28.4 billion.

The Blagojevich tax hike would be the largest in Illinois history and more than three times larger than the next-largest tax hike imposed anywhere in the nation in the past decade, according to the Washington, D.C.-based Tax Foundation. If passed by the legislature and signed, it would go into effect January 1, 2008.

Fellow Democrats Slam Proposal

The plan has faced withering criticism from fellow Democrats, including the state comptroller, lieutenant governor, numerous lawmakers, and Chicago Mayor Richard M. Daley.

Illinois’ powerful Democratic House Speaker, Michael Madigan (D-CITY), has remained silent, which many political observers take as a signal of opposition. Madigan and Blagojevich have butted heads on several matters over the years.

Republican lawmakers also have united against the plan, but Blagojevich remains undeterred, making stump speeches across the state in which he claims to be “on the side of the Lord” in proposing the massive tax hike to send more money to public schools and fund universal health care.

Boasts of Record Spending

Blagojevich, who has dubbed his plan “Investing in Families,” in early April did a bus tour of cities across the state to promote it. He boasts the plan would provide subsidized medical insurance to 1.4 million persons who lack coverage and to anyone earning up to four times the poverty level–an individual earning $40,000 or a family of four with an income of $82,000.

In addition, notes the governor’s press office, the plan includes a “record new investment of $10 billion in schools over the next four years–three times bigger than any increase in state history.”

Unions, Educators Back Proposal

The plan has supporters, including some black church leaders and businesspeople, labor unions, and public school officials.

“The State Black Chamber of Commerce agrees with the Governor that ‘the need is clear and the time is now,’ and that is why we are committed to working with the Governor’s office to get the General Assembly’s support so that we may create a fair and equitable system that levels the playing field, reduces the burden on middle-class families, helps small and mid-size businesses become more competitive, and lessens the tax burden on all Illinois residents,” said Larry Ivory, the organization’s president and CEO, in a press statement.

Ken Swanson, president of the Illinois Education Association, said Blagojevich’s tax and spending plan “represents a tremendous step forward on the road to ensuring every child in Illinois, no matter where the child lives, has the opportunity to receive a high-quality education.

“Our standard for any school funding plan has always been that the revenue stream must be predictable, sustainable, and provide adequate funding to every Illinois school district, while harming no district,” Swanson said. “That’s a high standard, and the governor’s plan more than meets it.”

Business Groups Condemn Plan

Most business organizations strongly oppose the proposal.

Greg Baise, president of the Illinois Manufacturers’ Association, said the governor’s plan is “madness.”

“A [gross receipts tax] will devastate the business community, particularly manufacturers, and place a new, regressive tax on goods and services,” Baise said.

Gregg Durham, spokesman for the Illinois Coalition for Jobs, Growth, and Prosperity, a group made up of various business organizations, called the plan “maybe the best jobs program Wisconsin, Indiana, and Iowa [which border Illinois] have ever had.”

Durham added, “Since the year 2000 Illinois has lost more than 300,000 jobs that paid health care benefits. I won’t say every one of them was lost because we’re not a competitive state, but a lot of them were lost for that reason. This proposal of the governor’s will make us even less competitive and drive out more jobs. We’re talking about the largest state tax increase, we believe, in the history of the nation.”

Jonathan Williams, staff economist at the Tax Foundation, said, “Gross receipts taxes are one of the most economically damaging ways for states to extract revenue, and economists from all ends of the political spectrum are nearly unanimous in their opposition to them.”

Steve Stanek ([email protected]) is managing editor of Budget & Tax News.