Illinois Senate Chamber
At 1:20 a.m. this Wednesday morning, the Illinois Senate approved an income tax increase passed by the House on Tuesday. The Governor has vowed to sign the bill. SB 2505, which retroactively begins Jan. 1, 2010, raises $6.5 billion in revenue through increasing the following taxes:
- Individual Income Tax rate increase from 3% to 5%
- Rate declines to 4% from 2015 to 2024
- Rate declines to 3.5% in 2025
- Corporate Income Tax rate increase from 4.8% to 7% (Combined Corporate Income Tax rate of 9.5%, with Personal Property Replacement Tax of 2.5%)
- Rate declines to 5.6% from 2015 to 2024
- Rate declines to 4.9% in 2025
- Four year suspension of Net Operating Loss Deduction for corporations from 2011 to 2014
- Companies will no longer be allowed to credit losses against future profits (in FY 2009 $260 million was credited by Illinois companies)
The bill also caps state spending by about 2% per year to:
- FY 2012 - $36.8 billion
- FY 2013 - $37.6 billion
- FY 2014 - $38.3 billion
- FY 2015 - $39.1 billion
If the legislature spends over the cap, the tax increases will be nullified. The Illinois auditor general must determine if the state has overspent. And while most of the cap will go toward Medicaid and pension obligations, a nice cushion was set into the base, considering that, according to the Illinois Commission on Government Forecasting and Accountability, total enacted operating expenditures and transfers out in FY 2011 were $33.5 billion.
Borrowing approved for pensions, not backlog of current bills
The Senate approved nearly $4 billion in borrowing to cover the required payment to the five state retirement agencies for this fiscal year. The House passed the pension borrowing plan last year.
But the General Assembly failed to pass an $8.75 billion borrowing plan intended to quickly pay down the backlog of bills owed to schools, human service providers and vendors for this fiscal year. Rep. Frank Mautino (D–Spring Valley), sponsor of SB 336, said if the measure had passed, the state could have started to send out checks in March. The plan could come up in the new session, which began this Wednesday. The tax hike proposal does include designated cash to pay off those bonds.
The House passed the increase on a 60 – 57 vote.
The Senate passed the increase on a 30-29 vote.
No Republicans backed the measure in the House or the Senate.
Cigarette tax voted down
The House voted down a $1.01–a–pack increase in the cigarette tax, which would have funneled an estimated $370 million to schools, a priority for the Black Caucus. Sen. Kimberly Lightford (D-Maywood) said the Governor promised members that $250 million from the income tax increase would go to schools for each of the next four year.
Supporters of the tax increase said failure to act to fill the state’s $15 billion budget deficit, including over $9 billion in overdue bills, would lead the state to insolvency, its bond rating already the lowest in the nation. According to the Illinois Comptroller the stated owed vendors more than $9 billion at the end of December, including $1.3 billion in short term borrowing due in July, $6.3 billion in unpaid bills to vendors, and $1.5 million in Medicaid and group insurance claims not yet transmitted to the Comptroller.