Illinois Senate Mulls $8 Billion Tax Hike

Published July 1, 2008

The Illinois Senate is considering legislation that would raise state taxes by nearly $8 billion to pay down state debt, finance road construction, and increase education funding. Critics argue the tax increase would strike a devastating blow against the state’s already stagnant economy.

The proposal–Senate Bill 2288–was introduced by the Reverend Sen. James Meeks (D-Chicago) and is co-sponsored by Senate President Emil Jones (D-Chicago). It would raise Illinois’ personal income tax by 67 percent, taking it from 3 percent to 5 percent. The corporate income tax would be increased from 4.8 percent to 8 percent.

Often marketed as a “tax swap,” the bill would commit nearly $2.9 billion to a proposed property tax abatement fund. In effect, the state government would increase income taxes in order to pay local governments to lower property taxes.

No Guarantees

Greg Blankenship, president of the Illinois Policy Institute, noted, “there is no guarantee that local authorities will permanently lower property taxes, and it is almost certain that future legislatures will raid any property tax relief for other priorities.

“Thus, taxpayers are going to pay higher income taxes and higher property taxes as a result of this bill,” Blankenship warned.

SB 2288 is a retread of legislation that has been popular for years with many of the state’s labor and teacher unions. In the past, proponents of similar legislation have pledged to dedicate almost all of the proposed new tax revenues to public education and property tax abatement.

The newest version of the bill pledges only 7.5 percent of new revenues to K-12 education and only 36 percent to the property tax abatement scheme.

Many Purposes

Nearly $1 billion would be used to fund a capital development plan. Another $600 million would be paid out via a family tax credit. Another $300 million would go to the state’s universities and community colleges.

Nearly $1.8 billion in new revenues would be used to service state debt, pay delinquent Medicaid bills, and increase payments into the state employee pension fund. Another $800 million would be used for those same purposes if the state can find a way to divert new income tax revenues that otherwise would be allocated directly to local governments, according to Sen. John Cullerton (D-Chicago), a co-sponsor of the legislation.

Proponents of open government question the timing of a capital development campaign, absent a reform of Illinois’ notoriously opaque budget process.

“Before any new money is spent on state construction projects, lawmakers need to develop a process that allows taxpayers to see how that money is going to be spent,” said Joe Calomino of Americans for Prosperity. “Otherwise, lawmakers will only fuel the culture of waste, fraud, and abuse in Illinois government.”

‘Worst Thing’

Other critics argue Illinois simply cannot afford another tax increase.

“The worst thing that Illinois could do is raise its income tax,” said Ohio University economist Richard Vedder, speaking in the state capital of Springfield on April 2. “Your income tax is flat. It’s relatively low. Leave it alone.”

An Illinois native, Vedder was addressing state lawmakers and businesspeople regarding a new book, Rich States, Poor States, which ranked Illinois’ economic outlook as eighth-worst in the nation. According to the book’s authors–well-known economists Arthur Laffer and Stephen Moore–states should cut taxes to increase economic growth. Such growth would lead not only to greater prosperity for the state’s taxpayers but also greater revenues for state government.

SB 2288 takes precisely the opposite approach, despite the warnings issued by Laffer and Moore in their book, “If history is any guide, states that try to respond to slow revenue growth and budget deficits with tax hikes will not gain tax revenues; they will lose businesses, jobs, and families.”

Collin Hitt ([email protected]) is director or education policy and reform at the Illinois Policy Institute in Springfield, Illinois.