Local lawmakers have deep misgivings about the effects Gov. J.B. Pritzker’s plan for a graduated state income tax will have on businesses, jobs and working families.
Pritzker, a Democrat, made instituting a graduated tax a focus of his successful campaign for governor. On Thursday, he released a detailed proposal he said will reduce taxes for 97 percent of households, while also generating $3.4 billion in additional revenue through increasing tax rates on households with annual incomes greater than $250,000.
The proposal also calls for a $100 child tax credit and a 20 percent increase in the credit for local property taxes.
“Instituting a fair tax, as I’ve proposed, will improve the arc of our state’s finances forever and make our system more fair for everyone,” Pritzker, who is a billionaire, said. “It’s wrong that I would pay the same tax rate as someone earning $100,000 – or even worse, pay the same tax rate as someone earning $30,000 – which is why 33 states and the federal government use lower rates for lower earnings and higher rates for higher earnings.”
Pritzker’s proposed tax structure would start at 4.75 percent for incomes up to $10,000. Those earning $10,000 to $100,000 would pay 4.9 percent. Households earning $100,000 to $250,000 would pay the current rate of 4.95 percent. The rate jumps to 7.75 percent for incomes between $250,000 and $500,000, and gradually ticks up to a top rate of 7.95 percent for incomes greater than $1 million.
The corporate tax rate also increases from 7 percent to 7.95 percent.
Supporters point out that most states with income taxes use a graduated system, and that this system makes high earners pay a greater share of the taxes.
Critics say it will stifle job creation, increase out-migration from Illinois and is merely a Trojan Horse that will allow lawmakers to ratchet up taxes on middle-class families in the future.
“You have to look at the top line and say, ‘This is a proposal to raise taxes by $3.4 billion,’” state Rep. Tom Demmer, R-Dixon, said. “We have to understand where that’s coming from, and what kind of impact that has on the economy. You can’t take $3.4 billion more from taxpayers and expect it’s not going to have an impact.”
DeKalb County is represented exclusively by Republicans in the legislature, and they have been united in opposition.
Republicans predict a graduated tax will reduce job creation and investment by small businesses, many of which are subject to tax rates on individuals.
Some, such as state Sen. Dave Syverson, R-Rockford, say the plan also threatens to drive more high-income people out of Illinois, which eventually will lead to higher tax rates on people with lower incomes.
“A majority of voters will look and see their tax rate is going to stay the same or go down a token amount, and they may believe that it’s good to make someone else pay more,” Syverson said. “The only problem is, in other states when there isn’t enough of those other people’s money, who ends up paying more? … If more income needs to be brought in, it’s going to be those working-class families that are going to see their rates changing or other fees being implemented.”
State Rep. Jeff Keicher, R-Sycamore, said he was disappointed Pritzker chose to focus on increasing taxes rather than addressing fiscal problems such as Illinois’ back-breaking pension obligations.
“This is the third income tax increase we have put onto the Illinois taxpayer in the past 10 years, and we continue to neglect to address process improvements in how Illinois governs,” Keicher said. “We are giving a credit card to the shopaholic.”
Although the governor’s proposal calls for increasing credits for local property taxes, Keicher predicted that the state’s financial woes would lead to greater reliance on local property taxes – and more pain for DeKalb County homeowners.
“I think with the spending that [Pritzker] has proposed, we will continue to see property tax increases that will largely negate any property tax credit that he has proposed,” he said.
The measure faces a long road before it could take effect, because it requires amending the Illinois Constitution.
A three-fifths majority of lawmakers in both the state House and Senate must approve placing a question on the ballot first. Then, the soonest the public would vote on the measure would be November 2020.
Sixty percent of voters would have to support the change to a graduated tax.
Democrats have the numbers to at least get a measure onto the November 2020 ballot.
They control 74 of the 118 seats in the House and 40 of the 59 Senate seats. They’re likely to follow the lead of Pritzker, who has political capital and has said he will be relentless in pursuing a new income tax system, Demmer said.
“He’s going to be pushing for it,” Demmer said. “I would think a lot of Democrats are going to say yes to him.”
• The Associated Press
contributed to this report.