Illinois Democrats Impose $7 Billion Tax Hike at Last Possible Moment

Published January 14, 2011

Illinois Democrats approved a 67 percent personal income tax increase and a 46 percent corporate tax increase in the dead of night on the last day of the state’s lame-duck legislative session, shortly before new lawmakers would have been seated to block the increases.

State budget officials estimate the tax hikes will take another $7 billion annually from Illinois families and businesses.

The tax hikes passed at nearly 2 a.m. with the bare minimum number of votes needed for victory: 60-57 in the House and 30-29 in the Senate. A few hours later, lawmakers who were elected in November were sworn in. The new General Assembly had more than enough members to have blocked the tax increases.

No Republican Support
Gov. Pat Quinn (D) signed the bill January 13. Not a single Republican in either chamber voted for the tax increases.

Quinn signed the bill with no ceremony or comment. However, in announcing he would sign the bill, Quinn explained his decision by declaring “Our fiscal house was burning.”

The state’s flat 3 percent personal income tax rate goes to 5 percent until 2015, then drops to 4 percent. For businesses, the 4.8 percent corporate rate rises to 7 percent until 2015, when it drops to 5.6 percent.

Nearly Highest Corporate Tax
In addition to the corporate rate is a “property replacement tax” of 2.5 percent that all businesses pay, which takes the new total corporate rate to 9.5 percent, giving Illinois the third-highest corporate tax rate in the nation.

There is considerable doubt the tax rates will ultimately drop as scheduled. The state’s prior income tax was the result of a “temporary” tax increase that became permanent until this tax hike.

Just prior to the New Year, newspapers reported Gov. Quinn was trying to put together a one-year, $15 billion borrowing package to keep the state government afloat. Illinois already has the nation’s worst credit rating among the 50 states as well as a $15 billion budget deficit, worst in the nation as a percentage of total state spending.

The borrowing plan was soon dropped, to be replaced by the tax hikes, which still leave Illinois with a multibillion-dollar deficit.

$8.75 Billion Borrowing Plan
On the day he signed the tax hikes into law, Quinn announced a new borrowing plan, this one for $8.75 billion to cover the gap and pay $6 billion in overdue bills.

“Borrowing costs, combined with annual increases in the expected pension contribution, will crowd out basic government functions in the near future,” said John Tillman, CEO of the Illinois Policy Institute, an independent policy research organization. “Our past borrowing is already catching up to us. Illinois would have had an extra $1.6 billion in available revenues this year if not for the debt service costs of previous years’ borrowing. Gov. Quinn’s borrowing will hit the working class, poor, and disadvantaged of Illinois the hardest.”

Wipes Out Federal Extensions
“Families and businesses simply cannot pay more in taxes to bankroll years of irresponsible and unaccountable state spending,” said State Rep. Mike Tryon (R-Crystal Lake), in a statement. “Just weeks ago, President Obama agreed with Republicans that it is important to allow families to keep more of their money to spend as they see fit. But here in Illinois, the controlling party disagrees. They just canceled out the federal tax cut for families here.”

Quinn became governor in 2009 to fill the unexpired term of Democratic Gov. Rod Blagojevich, who was arrested and then impeached for allegedly trying to sell the Senate seat Barack Obama vacated on becoming President. Last August a federal jury convicted Blagojevich of lying to investigators, and he’s awaiting retrial on 23 other counts.

Quinn won just four of Illinois’ 102 counties in being elected to a full term last November, but he won big in Democrat-heavy Cook County, which includes Chicago, where Quinn lives.

John W. Skorburg ([email protected]) is associate editor of Budget & Tax News and a lecturer in economics at University of Illinois-Chicago. Steve Stanek ([email protected]) is managing editor of Budget & Tax News.