'Temporary' tax increases always become permanent in Illinois

---

Ben Szalinski
Illinois Policy

---

State politicians have repeatedly reduced backlash from tax hikes by calling them temporary. That’s what they did in 1989 and 2011 but voted later to break their promises and make the increases permanent.

In 1989, former Republican Gov. Jim Thompson was pushing for a permanent 40% tax increase. Thompson lacked support from Democrats and reached a compromise with Speaker of the House Michael Madigan to temporarily raise taxes by 18% for the next two years by raising the rate from 2.5% to 3%.

At the time, Madigan said Illinois did not need more tax revenue. Thompson disagreed, saying it was necessary to address concerns over school funding and property taxes. He said a temporary hike just pushed the problems to the future.

Two years later, lawmakers again voted to extend the temporary increase. In 1993, the General Assembly made it permanent.

Following the Great Recession in 2011, former Gov. Pat Quinn and state lawmakers jacked taxes up from 3% to 5%, again with the promise it would be temporary. Quinn said the increase was to help the state pay the bills and regain sound financial footing. Former Senate President John Cullerton promised it would help pay for pensions without borrowing.

“The point of this income tax increase is not to expand programs, not to do brand new things in Illinois state government, it is only intended to pay our old bills and deal with the structural deficit,” said former House Majority Leader Barbara Flynn Currie.

Lawmakers planned to partially sunset the tax to 3.75% in 2014 and 3.25% in 2025. The decrease did happen in 2014, but it was short lived.

The General Assembly passed the largest tax increase in Illinois history in 2017 by raising rates back up to 4.95%.

The temporary 2011 hike solved few problems for Illinois and the 2017 increase has been no better. The state still struggles with the nation’s worst pension crisis and the deficit has quadrupled since 2011.

Illinois' net position worsens dramatically despite two major tax hikes

Gov. J.B. Pritzker is now asking taxpayers to play this game again with a progressive income tax structure. He wants a small percentage of Illinois taxpayers to pay more in taxes to bail out the state’s financial mismanagement.

However, the governor’s revenue projection falls short. Pritzker says a progressive income tax will net the state an additional $3.4 billion. Analysis by the Illinois Policy Institute found it would only generate $1.4 billion more.

There is no possible way Pritzker can fulfill all of his spending promises, pay down billions in debt and still cut taxes for 97% of Illinoisans, as his proposal claims. Eventually, lawmakers will be back seeking another tax increase but with greater power to put unfair burdens on smaller groups of taxpayers, including taxing retirement income like every state with a progressive tax.

The Illinois Constitution contains a flat tax protection, meaning you pay more when you make more and pay less when you make less – but everyone pays the same rate. Lawmakers pay a political price when they raise everyone’s taxes, as happened in 2017 when resignations and voter backlash cleared out the General Assembly.

Giving the General Assembly a progressive income tax would be equivalent to handing them a blank check. They will be able to spend however much they want and selectively target different segments of the population for more taxes, reducing the number of angry taxpayers at any one time.

Illinois voters for the first time in 50 years have a chance Nov. 3 to tell Springfield what they think about tax increases. Lawmakers need to fix basics, such as pension growth and 20 years of deficit spending, before making another promise to taxpayers that history shows is bound to be broken.

---

Originally published by Illinois Policy on September 16, 2020. Published by permission.

Small business and retirees could suffer under progressive tax plan

---

Ben Szalinski and Adam Schuster
Illinois Policy

---

Illinois state Treasurer Michael Frerichs confirmed what many believe would be a new possibility in Illinois if voters pass the progressive income tax amendment: taxing retirees.

"One thing a progressive tax would do is make clear you can have graduated rates when you are taxing retirement income," he said while speaking at an event hosted by the Des Plaines Chamber of Commerce. "And, I think that’s something that’s worth discussion."

According to the Daily Herald, Frerichs said he knows people who receive annual pensions over $100,000 but pay no state income taxes. He said under the flat tax there is no way to differentiate between retirees who take home hundreds of thousands from those who get little.

Illinois voters on Nov. 3 will decide whether to remove the Illinois Constitution’s flat tax protections and give state lawmakers greater power to set tax rates.

All 32 states with a progressive income tax impose some sort of tax on retirement income from 401(k)s, IRAs, Social Security and pension benefits. Mississippi limits its retirement taxes to the income of those who retire before age 59.5.

The constitution’s drafters in 1970 included a flat tax guarantee in order to ease voters’ fears that the state’s first income tax – which went into effect in 1969 – could be raised easily in Springfield. Flat taxes treat everyone the same and make it harder for lawmakers to raise rates on everyone because voters can hold them responsible. A graduated tax allows politicians to decide who should be taxed how much and allows them to gradually increase taxes on smaller segments of the population, eventually hitting the middle class where most taxable income resides.

That is what happened in Connecticut, the only state in the past 30 years to impose a progressive tax. Middle class taxes rose 13%, property taxes spiked 35%, poverty increased by 50%, more than 360,000 jobs were lost and the state economy took a $10 billion hit. All that, and the state still failed to balance its budget.

Gov. J.B. Pritzker has billed a progressive income tax as a way to increase taxes on the rich without also increasing taxes on the poor and middle class. But for a low-income resident making $12,400 a year, the tax would save them $6 while they are still taxed $1,800 a year.

The bigger problem is the tax’s impact on small businesses, which are just starting the economic recovery from Pritzker’s COVID-19 lockdown orders. A progressive tax would mean up to a 47% tax increase on over 100,000 small businesses, the state’s most prolific jobs creators.

Taxing retirement is not a new idea in Illinois. Former Chicago Mayor Rahm Emanuel proposed taxing retirees with incomes over $100,000 last year, while the Civic Committee of the Commercial Club of Chicago proposed taxing retirement income over $15,000 per year.

The Chicago Sun-Times editorial board even tied the two together, writing "Pritzker’s progressive income tax plan can set the stage for far greater tax fairness. Next, that tax should be expanded to include the highest retirement incomes."

Former Democratic gubernatorial candidate and former state Sen. Daniel Biss also agreed with Frerichs’ position that a progressive tax is needed in order for Illinois to tax retirement income.

While government leaders argue for more taxation, Illinoisans want to move in the opposite direction. A 2019 poll by the Paul Simon Public Policy Institute found 73% are against taxing retirement incomes, while just 23% believe it is a good idea. Illinois is one of three states that does not tax retirement income.

With no retirement tax, Illinois can more easily retain retired workers without losing them to more tax-friendly states. Since 2013, Illinoisans over age 65 have been the least likely to move out.

Illinois' tax exemption for retirement helps retain state's older residents

Connecticut’s progressive income tax hits single filers on $50,000 and joint filers on $60,000 of retirement income. Unsurprisingly, Connecticut loses retired residents at a faster rate than Illinois.

If the Land of Lincoln changes tax structures and imposes a progressive income tax that taxes retired workers on their income, these trends can easily change. More Illinoisans over 65 will pack and move to states with better climates and lower tax rates.

Illinois leaders who want to ensure fairness and economic recovery should protect the current tax structure. Progressive taxation and taxing retirement income will not fix the state’s spending problem, but will send more jobs and retirees to other states.

---

Originally published by Illinois Policy on June 24, 2020. Published by permission.

Pritzker says state has reached a "critical juncture"

On Tuesday, Illinois Governor J. B. Pritzker ordered state agencies to identify areas of their 2020 budgets that can be cut by 5% as well as 10% cuts that can be made in their spending plans for the next fiscal year should Congress fail to provide additional COVID-19 relief funds.

"Any cut to the Illinois state budget is a win for taxpayers," said Jim Tobin, President of Taxpayers United of America (TUA). "However, a broad cut to the state budget is not enough."

Tobin says the state of Illinois’s financial woes are due to the vast amount it spends on lavish, overpromised retired government employee pensions.

"This is why Pritzker is really cutting the budget, he wants to divert pay from current Illinois government employees to retired Illinois government employees," Tobin said in a release this morning. "Every year former Illinois government employees eat up even more of the state’s budget.

In fact, the primary motivation for a $5 billion state income tax hike that passed a few years ago was to transfer wealth from taxpayers to the black hole that is the Illinois pension funds."

Pritzker calls the current state's budget woes a "nightmare scenario".

We've reached a critical juncture for our own state finances in this COVID induced financial crisis," he said during his press conference in Chicago.

In June, Pritzker signed off on $43 billion dollar budget that began July 1 relied heavily on federal aid and borrowing to fill revenue shortfalls due to the COVID-19-induced economic slowdown.

A memo from Deputy Gov. Dan Hynes and budget director Alexis Sturm to agency directors stated the state's current budget "is only affordable in its current form with federal support to bridge the pandemic-related shortfalls and that now appears not to be forthcoming."

Illinois stands to lose out on $6.5 billion in revenue this year and next year. Agency heads were given until Oct. 2 to outline their reductions for the current year.  This includes taking necessary measures from hiring freezes to renegotiating on any planned spending commitments.

Tobin points out that governor's Illinois progressive income tax is purely a move to raise taxes.

"Pritzker’s income tax increase amendment, better described as an income theft amendment, is not what Illinois needs," he wrote. "Illinois taxpayers should vote no on November 3rd to the proposed amendment change, and demand Pritzker to cut spending further."

Governor Pritzker pushes state income tax filing date to July 15

---

Ben Szalinski, Illinois Policy

---

Gov. J.B. Pritzker announced at his daily press conference on March 25 that July 15 will be the new deadline for Illinoisans to file state income taxes. The change comes five days after the same move was made by the federal government, which also pushed the deadline to July 15.

Pritzker said refunds are still being processed and distributed for those who have already filed taxes. Additionally, the state is allowing restaurants and bars extra time to pay their sales taxes. Other things such as evictions and utility shutoffs for late payments have also been suspended by executive order.

Pritzker said delaying the filing deadline will help soften the immediate economic impact of the COVID-19 pandemic. The governor instituted a stay-at-home order that started March 21 that will last at least through April 7. All non-essential employees are to stay home and non-essential travel should be limited. On March 16, all restaurants and bars were closed to dine-in customers, but allowed to remain open for drive-through and take-out service.

The closure of businesses is leading to severe economic losses and a rise in unemployment. Between March 16 and 18, unemployment claims in Illinois rose by 64,000. After new social distancing measures were introduced, the number was expected to rise higher. Nationally, some experts believe unemployment may hit an unprecedented 30% in the second quarter.

While the numbers paint a grim economic future, it is important to note many of those seeking unemployment will be able to return to their jobs when social distancing orders are lifted. The current unemployment count does include furloughed workers.

In addition to putting off the day Illinoisans must pay taxes, Chicago Mayor Lori Lightfoot is suspending collection of traffic fees until April 30 to ease the economic burden on residents. Drivers will not immediately have to pay for late parking tickets, towing fees or red-light camera tickets. The city will also suspend its “booting” system.

Illinois currently has 1,865 cases of coronavirus with 19 deaths. The number of cases rose by 330 on March 25, the same day Pritzker announced the delayed tax deadline. Thirty-five counties have reported cases across all ages.

The economic impact of the virus is expected to be staggering in Illinois. The Illinois Policy Institute put together a report detailing what the state must do now to prepare for the fallout from the halt in economic activity, including a commercial property tax holiday and pension reform to preserve needed revenues.

---

Originally published by Illinois Policy on March 25, 2020. Published by permission.