Illinois Gov. Rod Blagojevich (D) used his annual State of the State address on February 16 to reject a bill that would sharply increase the state income tax and reduce reliance on local property taxes to fund public education.
“Any proposal that swaps income taxes and property taxes still wouldn’t mean more total funding for schools unless taxes go up more than they go down,” Blagojevich said of the tax plan sponsored by Emil Jones, leader of the Illinois Senate and a fellow Chicago Democrat.
Jones told reporters afterward, “I don’t appreciate him taking a shot at reforming education. I don’t appreciate that. I’ve got a mean streak.”
Jones backs House Bill 750, which would increase the state income tax from 3 to 5 percent and raise other taxes in exchange for a cut in property taxes. He has introduced an identical bill in the State Senate.
Critics say the proposed legislation is not revenue-neutral but is instead a tax increase that would send more money to public schools and state budget coffers and slow the state’s economy.
Bill “Hostile to Business”
“Passage of [H.B. 750] would make Illinois more hostile to business investment, less competitive in attracting new jobs, and would harm the state’s ability to keep current jobs,” said Chris Atkins, co-author of a recent study on the Illinois tax climate and a staff attorney with the Tax Foundation in Washington, DC.
“This bill would single-handedly lower Illinois’ ranking in the [Tax Foundation State Business Tax Climate] Index from 23rd to 38th,” said Atkins. “The economic damage inflicted by the tax increases in H.B. 750 would far outweigh any contemplated benefits.”
The Tax Foundation’s State Business Tax Climate Index rewards states whose tax policies create a “level playing field” for economic activity, have moderate tax rates, and do not impose burdensome compliance rules.
Illinois State Sen. Chris Lauzen (R-Aurora), a member of the state’s revenue and appropriations committees, has pledged to make sure the Senate’s version of H.B. 750 does not pass.
“Since the day I first was elected to the General Assembly, I have made fiscal responsibility in state government my highest priority, next to constituent service,” Lauzen said in a statement issued February 8.
“I hope to use the analysis and discussion in the Revenue Committee to help my constituents and other citizens in Illinois to protect property tax caps, support Governor Blagojevich’s pledge to not raise sales and income taxes, and explore comprehensive ‘impact fee’ legislation to reduce the need for frequent referendums,” Lauzen said.
Political Rift Widening
On February 17, Blagojevich met with the editorial board of the Chicago Tribune and confirmed his intent to veto a tax swap bill. According to a February 18 Tribune report, the “rift between Gov. Rod Blagojevich and Senate President Emil Jones grew wider as the Governor vowed to veto [any] school funding reforms being pushed by Jones if they included any increase in income taxes.”
The Tribune also reported Blagojevich said the state could “reap more money to spend on schools if lawmakers would go along with his proposal to reduce retirement perks for new state workers–a move that would free up cash that would [otherwise] have to be paid to government employee pension funds.”
“I’m not convinced that the only answer to school funding and the inequities to the school-funding formulas necessarily mean you have to raise the income tax or the sales tax,” Blagojevich said.
John W. Skorburg ([email protected]) is a visiting lecturer in economics at the University of Illinois-Chicago and associate editor of Budget & Tax News.