Illinois Spending Soars, Governor Seeks Tax Hikes

Published June 1, 2009

Illinois state government is facing a budget deficit between $8 billion and $11.5 billion, and Illinois citizens are facing tax and fee hikes that could take billions more from them.

Gov. Pat Quinn (D)—the one-time lieutenant governor to indicted and impeached Gov. Rod Blagojevich (D)—insists tax hikes are necessary to balance the budget.

Not so fast, say other state leaders.

“Over the last six years, we have seen state spending grow by over $9 billion—a 41 percent increase,” said Illinois House Republican Leader Tom Cross (R-Oswego). “We need to implement some accountability and responsibility to begin holding the line on both taxes and spending.”

50 Percent Tax Hike

Quinn’s budget calls for at least $3.5 billion in new revenues. The personal income tax rate would be increased by 50 percent, and the corporate income tax also would be raised, making it the fourth highest in the nation.

“Illinoisans already pay high sales taxes—Chicago’s 10.25 percent rate is the highest of any large city in America—and above-average property taxes,” said Josh Barro, staff economist with the Washington, DC-based Tax Foundation. “The saving grace of the Illinois tax code is the low, simple income tax. Governor Quinn’s proposal is to do away with the only good thing about Illinois taxes.”

Not Just on ‘Wealthy’

Quinn aims to soften the blow for some by increasing the standard personal exemption that is applied before income taxes are calculated, but doing so won’t shield many taxpayers.

Under Quinn’s plan, according to a recent Illinois Policy Institute study, a single taxpayer making more than $14,000 a year would pay more in taxes, as would a couple bringing home more than $28,000. A three-person family with household income topping $42,000 also would be hit with a higher tax bill.

“The last thing the hard-working families in this state need is an income tax increase,” said state Rep. Michael Connelly (R-Naperville). “We can better help our residents by passing spending transparency legislation, which would allow us to get a grip on the tens of billions of taxpayer dollars that the government already spends. Transparency is to government waste what an MRI is to a disease—a roadmap to removing the ailment.”

Spending Hikes

While Quinn did make some cuts to state spending, most notably to the costs of public employee health care and retirement benefits, he increased proposed expenditures for certain government agencies, including education and health care.

In early April, Illinois Senate Republicans released a spending cut blueprint they say would save $3.4 billion per year, primarily by relying on reforms to Medicaid, public retiree health care benefits, and procurement practices.

“Corruption, mismanagement, lack of leadership, reckless spending, and anti-business tax schemes have caused this deficit,” said Illinois State Senator Dan Duffy (R-Barrington). “Ending corruption, encouraging job growth, and keeping taxes low will solve our state’s budget problems. We need more jobs, not more taxes.”

Whopping Cigarette Tax Hike

Quinn also is pushing for a $1 increase in the state’s excise tax on cigarettes, currently at 98 cents a pack, with the intent of using the money to bring down the state’s Medicaid payment backlog. Taxpayer advocates are concerned the expected revenues from a tobacco tax hike won’t materialize as the higher price point drives users away.

“A tax increase with such uncertain revenue prospects is a terrible proposition,” said Joshua Culling, state government affairs manager for the National Taxpayers Union. “In fact, I wouldn’t be surprised to see a New Jersey effect, where the state actually loses money as a result of the cigarette tax hike.”

Many are questioning the long-term impact of a tax hike on Illinois’ economy. The state ranks 44th and 48th, respectively, in its economic outlook and performance, according to the ALEC-Laffer State Economic-Competitiveness Index.

$8.6 Billion in Lost Output

Tax policy economist Scott Moody calculates Quinn’s personal income tax hike would cost the Illinois economy $8.6 billion in lost output over the long term.

“To put this massive sum into perspective,” said Moody, “the hidden cost of Gov. Quinn’s tax hike is the economic equivalent of taking all the 2008 tax revenue from the sales tax, cigarette tax, liquor tax, inheritance tax, corporate franchise tax and fees, and insurance taxes and fees and dumping that money into Lake Michigan.”

Moody believes the governor and General Assembly should instead focus on reducing spending.
“That is the only sustainable way to balance the budget and lower taxes in order to put Illinois back on the path to economic recovery,” Moody said.

Kristina Rasmussen ([email protected]) is executive vice president of the Illinois Policy Institute.