• Illinois: Think Tank Proposes Alternative to Senate's Tax-Incresing Budget
  • July 13, 2017 | Authors: David M. Kall; David D. Ebersole; Michelle Rood
  • Law Firms: McDonald Hopkins LLC - Cleveland Office; McDonald Hopkins LLC - Cleveland Office
  • Shortly before Governor Bruce Rauner gave his state-of-the state address in February, he put forth a resolution for what is anticipated to be a $5.3 billion budget hole by the end of the fiscal year on June 30, 2017.

    As we detailed when he released his solution, Gov. Rauner sought, among other things, a personal income tax increase, from 3.75 percent to 4.95 percent, forecasted to generate $4.1 billion annually. Democrats supported this move on the grounds that it, along with strategic spending cuts, could eliminate the deficit entirely.

    Now, Senate Democrats, on their own, have passed a budget by a vote of 32 to 26, by way of SB 9, that does indeed contain the necessary provisions to accomplish their goal. In analyzing the legislation, Illinois Policy, a think tank that promotes “personal freedom and prosperity in Illinois,” observed that individual households would pay, on average, an additional $1,125 in taxes each year. This would come from increases to income and franchise taxes, and an expansion of the sales tax.

    More specifically, SB 9 does the following:

    • Increases personal and corporate income taxes by $5 billion in tax revenue, consisting of the personal income tax increase that Gov. Rauner sought, and a corporate income tax increase, from 5.25 percent to 7 percent.
    • Expands the sales tax to items such as storage, laundry and dry-cleaning services, that would amount to an additional $55 million in revenue.
    • Increases cable and satellite TV taxes to generate an additional $54 million.
    • Closes corporate loopholes worth $125 million.

    SB 9 calls for the income tax hike to be retroactive to Jan. 1, 2017. Accordingly, Illinois Policy notes taxpayers will pay an effective rate of 5.81 percent on their earnings for the remainder of the year.

    A companion bill, SB 6, addresses the spending cuts and other matters. It provides that 13 separate laws must be enacted in order for any one of them to take effect. These 13 measures include the following:

    • School funding: SB 1 provides an evidence-based funding formula beginning with the 2017-2018 school year, and sets forth provisions regarding various calculations, like an adequacy target calculation, a local capacity calculation, a base funding minimum calculation, a percent of adequacy and final resources calculation, and an evidence-based funding formula distribution system.
    • Minimum wage increase: SB 2 increases the minimum wage from $8.25 to $9.00 beginning July 1, 2017, and again by $0.50 each July 1 until July 1, 2021, at which point the minimum wage will be $11.00. It also creates a credit against the withholding tax liability of employers with fewer than 50 employees, calculated based on the increase in the minimum wage.
    • Local government consolidation: SB 3 addresses various issues pertaining to the dissolution of a unit of local government.
    • Bond authorization: SB 4 authorizes the issuance of an additional $7 billion in State General Obligation Restructuring Bonds.

    Other bills pertain to, among other things:

    • Contribution requirements for teacher pensions (SB 5)
    • Agency appropriations (SB 6)
    • Creation of the Chicago Casino Development Authority Act (SB 7)
    • Ethics compliance (SB 8)
    • Municipal conveyance of state tax revenues (SB 10)
    • Teachers’ retirement annuities (SB 11)
    • Amendments to the Freedom of Information Act and Worker’s Compensation Act (SB 12)
    • Unfunded mandate compliance for school districts (SB 13).

    Illinois Policy frowned upon Democrats’ approach to the budget, opining that more tax hikes will hurt residents, causing them to flee the state, while punishing those who are unable to do so. Additionally, “tax hikes will only perpetuate the state’s structural problems and deflate the pressure to enact real change….Illinois can no longer put off real spending reforms.”

    Instead, in Budget Solutions 2018, the group proposes balancing the budget without tax increases by deploying these tactics:

    • Enacting comprehensive property tax reform, for $3.4 billion in savings. This includes a five year property tax freeze, eliminating costly state mandates and giving back spending control to local governments.
    • Ending Illinois’ pension crisis through self-managed plans, for a 2018 pension contribution $1.65 billion less than baseline.
    • Aligning costs associated with the American Federation of State, County and Municipal Employees with what taxpayers can afford, for $1.1 billion in savings.
    • Streamlining Medicaid spending, for $415 million in savings.
    • In the higher education realm, prioritizing students over administrators, for $500 million in savings.

    This plan, Illinois Policy contends, will fill the budget hole, balance the state budget without tax hikes, provide tax relief to struggling homeowners through comprehensive property tax reform, and implement pension reforms that not only comply with the Illinois Constitution, but will begin to end the pension crisis.

    SB 9 is currently working its way through the House, where, on May 29, 2017, the Revenue and Finance Committee approved its version by a 7 to 4 vote.