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Gov. Quinn promises to quickly sign Ill. tax hike

By DEANNA BELLANDI
Associated Press

SPRINGFIELD, Ill. (AP) - Illinois Gov. Pat Quinn is defending a massive increase in state income taxes and promises to sign the bill passed by lawmakers quickly.

Democratic Illinois lawmakers beat a looming deadline and approved a 66 percent income-tax increase in a desperate bid to end the state's crippling budget crisis.

Legislative leaders rushed early Wednesday to pass the politically risky plan before a new General Assembly was sworn in at noon, taking a slice out of the Democratic majority and removing lame-duck lawmakers willing to support the tax before leaving office.

The rate increase might be the biggest any state has adopted in percentage terms while grappling with recent economic woes. Nevertheless, Illinois' tax rate would remain lower than in several other states in the region.

The increase now goes to Democratic Gov. Pat Quinn, who supports the plan to temporarily raise the personal tax rate to 5 percent, a two-thirds increase from the current 3 percent rate. Corporate taxes also would climb as part of the effort to close a budget hole that could hit $15 billion this year.

"Governor Quinn today thanks the Illinois General Assembly for taking strong action to confront our fiscal crisis and provide the revenue and reforms needed to stabilize the budget, pay our bills and jumpstart Illinois' economy," a statement from his office said.

Quinn's office said the higher taxes will generate about $6.8 billion a year - a major increase by any measure.

It will be coupled with strict 2 percent limits on spending growth. If officials spend above those limits, the tax increase will automatically be canceled. The plan's supporters warned that rising pension and health care costs probably will eat up all the spending allowed by the caps, forcing cuts in other areas of government.

Other pieces of the budget plan failed.

Lawmakers rejected a $1-a-pack increase in cigarette taxes, which would have provided money for schools. They also blocked a plan to borrow $8.7 billion to pay off overdue bills, which means long-suffering businesses and social-service agencies won't get their money anytime soon.

House Speaker Michael Madigan, sounding weary, said Republicans should have supported some parts of the plan instead of voting against everything.

"They're on the sidelines. They don't want to get on the field of play," the Chicago Democrat said. "I'm happy that the day has ended."

But Republicans noted they were not included in negotiations. They also fundamentally reject the idea of raising taxes after years of spending growth.

"We're saying to the people of Illinois, 'For eight years we've overspent, now we're going to make it your problem,'" said Rep. Roger Eddy. "We're making up for our mistakes on your back."

The increase means an Illinois resident who now owes $1,000 in state income taxes will pay $1,666 at the new rate. After four years, the rate drops to 4 percent and that same taxpayer will then owe $1,333.

Republicans predict the tax eventually will be made permanent.

"It's a cruel hoax to play on citizens to say this is temporary," said House Minority Leader Tom Cross, R-Oswego.

Democrats bristled at being blamed for the state's financial problems, although they've controlled the governor's office and both legislative chambers since 2003.

They said some of the problem began under Republican governors and that Republicans backed some budgets that increased spending. They argued the national recession sent state revenues into a nosedive and that Democrats already have cut spending by billions of dollars.

"This mess is a mess that is the responsibility of all of us as Republicans and Democrats, of several different governors and part of the mess isn't even anybody's fault," said House Majority Leader Barbara Flynn Currie, D-Chicago.

The new tax money will balance the state's annual budget and let officials begin chipping away at the backlog of unpaid bills. Borrowing money, and then repaying it with a portion of the tax increase, would have allowed those bills to be paid immediately, aiding organizations that provide services for the state but go months without being reimbursed.

The delay and the spending limits are "very troubling" to those groups, said Sean Noble, policy director for Voices for Illinois Children, a member of the statewide Responsible Budget Coalition. Still, he called the tax increase "an enormous step" toward putting Illinois on sound financial footing.

The proposal passed the House on Tuesday night 60-57, the bare minimum. No Republicans backed the measure there or in the Senate, where the measure passed 30-29.

The governor has refused to discuss the tax proposal publicly, although his aides say he supports it. During his election campaign, Quinn promised to veto any tax plan higher than his proposal for a 1-point increase.

Republicans accused Democrats of doing irreparable harm to Illinois families and businesses. Business leaders decried the proposal as a job-killer.

"Based on this particular legislation the only businesses that will benefit are the moving companies that will be helping many of my members move out of this particular state," said Gregory Baise, head of the Illinois Manufacturers' Association.

Democrats countered that even with the increase, Illinois' tax rate will be lower than in many neighboring states - Iowa's top rate is 8.98 percent, Wisconsin's is 7.75 percent. They also maintain that without more money, state government may not be able to pay employees by the end of the year. Major government services might have to be halted, they warn, and groups waiting for state payments will go under.

Spending limits were added to the plan to win the support of some suburban Democrats. Republicans said the limits don't do enough to clamp down.

The limits allow next year's spending to increase considerably so the state can make its required contribution to government retirement systems, pay overdue bills and cover other costs that had been shoved aside. After that, however, spending could not grow more than 2 percent annually for the next three years or else the tax increase would be reversed.

"We're really trying to handcuff ourselves and the governor in our spending," said Illinois Senate President John Cullerton, a Chicago Democrat.

Associated Press writers Christopher Wills and Zachary Colman contributed to this report.

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Missouri's income tax rate is 6 percent. Kentucky's income tax rate varies from 5.8 percent to 6 percent. Tennessee's income tax rate is 6 percent.

"It's going to drive jobs out of the state of Illinois," said Representative John Jones (R-Mt. Vernon). "I've already had five corporations which I can't give out their names. I'm in the process of negotiating with them trying to keep them here."

Representative Brandon Phelps voted against party lines.

"We're still spending money," said Representative Brandon Phelps (D-Harrisburg). "I think that's wrong. I had more phone calls about this over the past week than I've ever had in the eight years I've been in the state Legislature. And I listen to the people. They do not want state government to be rescued so to speak on the backs of them."

Kathy Cox with H&R Block in Carbondale says small business owners will feel the sting of the tax hike more than anyone else.

"If you're self employed that's where you're really going to see the change," said Cox. "When you have to send in estimates or if you're not having withholding, coming up with that extra 2 percent on your quarterly basis you're going to feel that a little more than the average tax payer that has withholding."

Here is how Heartland lawmakers voted on Senate Bill 2505:

SENATE

•Dist. 54 - John Jones (R) - NO
•Dist. 58 - David Luechtefeld (R) - NO
•Dist. 59 - Gary Forby (D) - NO

HOUSE

•Dist. 107 - John Cavaletto (R) - NO
•Dist. 108 - David Reis (R) - NO
•Dist. 115 - Mike Bost (R) - NO
•Dist. 116 - Dan Reitz (D) - YES
•Dist. 117 - John Bradley (D) - YES
•Dist. 118 - Brandon Phelps (D) - NO

CAT Tracks Editor's Note:

After posting the article above, I visited the Southern Illinoisan website. There were a couple of articles that provided opposing views on the tax increase.

For your reading pleasure...

From the Southern Illinoisan...

Link to Original Story

Region largely peeved over tax hike

BY STEPHEN RICKERL
THE SOUTHERN

Taxpayers in Illinois will see a reduction in their take-home pay, while businesses will pay more in corporate tax as part of a revenue generating move passed by the General Assembly to address the state's financial crisis. Under the new bill the Illinois personal income tax will increase from 3 percent to 5 percent, and the corporate income tax rate will increase from 4.8 percent to 7 percent.

David Yepsen, director of the Paul Simon Public Policy Institute, said the move to increase taxes is a dose of tough medicine, but necessary to address the state's financial crisis. Yepsen said Illinois has one of the worst financial situations in the country; a tax increase won't fix everything but it's a step in the right direction.

He said businesses owed money by the state will see additional income, and government agencies in Southern Illinois, such as SIUC, community colleges, prisons and schools, will likely see funds from the tax increase. Yepsen said there are still painful cuts ahead for the state.

"I don't think anyone that works for the state government is going to be dancing a jig," he said.

Tom Johnson, president of the Taxpayer's Federation of Illinois, said changes to the federal tax law that would have decreased taxpayer's burden will be offset by the tax increase in Illinois.

Johnson said the increase in the corporate tax will make Illinois third in the nation for highest corporate taxes behind Pennsylvania and Minnesota.

For some Southern Illinoisans, the tax increase is the last straw.

Michael Klempin said the newly passed income tax hike will push him to move his small graphics firm, based in West Frankfort, out of state.

"I'm horrified but not surprised," he said. "Once again, Illinois is hurting its citizens."

The income tax increase was the "final straw" in a state filled with anti-small business straws, he said. Klempin said he is eyeing Alabama and other states where the tax rates are not as high.

Moving operations to another state "is a no-brainer," he said.

George Trammell, president and CEO of the Marion Chamber of Commerce, said the increase is terrible and doesn't help business. He said he doesn't understand how they can raise taxes but not reign in government spending.

"They just still don't get it," he said. "It's helped all the states around Illinois."

Mike Lane of Murphysboro said he doesn't believe the tax increase is a necessary move and feels it will worsen the state's financial situation.

"All I think it's going to do is get us more in debt," he said. "I don't think it's going to cure a thing."

Brendan Tolan of Carbondale said he thinks the tax increase is a case of an ineffective legislature.

"The increase is pretty high - the bottom line is they put it on the taxpayer, on the residents of Illinois, not on the government to find to the waste."

Some Southern Illinoisans view the tax increase as necessary in fixing the state's budget crisis.

Kraig Anthony of Carbondale said he is retired but even if he were still working he'd support the tax increase. He said the tax increase had to be done.

"We're broke," he said. "The money has to come from someplace."

- Becky Malkovich contributed to this report.

From the Southern Illinoisan...

Link to Original Story

Neighboring states gleeful over tax increase

BY CHRISTOPHER WILLS
THE ASSOCIATED PRESS
thesouthern.com

SPRINGFIELD- While many states consider boosting their economies with tax cuts, Illinois officials are betting on the opposite tactic: dramatically raising taxes to resolve a budget crisis that threatened to cripple state government.

Neighboring states gleefully plotted Wednesday to take advantage of what they consider a major economic blunder and lure business away from Illinois.

"It's like living next door to ‘The Simpsons' - you know, the dysfunctional family down the block," Indiana Gov. Mitch Daniels said in an interview on Chicago's WLS-AM.

But economic experts scoffed at images of highways packed with moving vans as businesses leave Illinois. Income taxes are just one piece of the puzzle when businesses decide where to locate or expand, they said, and states should be cooperating instead trying to poach jobs from one another.

"The idea of competing on state tax rates is . hopelessly out of date," said Ed Morrison, economic policy advisor at the Purdue Center for Regional Development. "It demonstrates that political leadership is really out of step with what the global competitive realities are."

By going where no other state dares to tread, Illinois could prove itself to be a policy pacesetter or the opposite - a place so dysfunctional that officials created a jaw-dropping budget crisis and then tried to fix it by knee-capping the economy.

Illinois faced a budget deficit of $15 billion in the coming year, equivalent to more than half the state's general fund. Officials warned that state government might not be able to pay its employees. It certainly would fall further behind in paying the businesses, charities and schools that provide services on the state's behalf.

To avoid that, the Democrat-controlled General Assembly voted to temporarily raise personal income taxes 66 percent, from 3 percent to 5 percent. Corporate rates will rise, too - from 4.8 percent to 7 percent - when Democratic Gov. Pat Quinn signs the measure.

The increase is expected to produce $6.8 billion a year for the four years it's in full effect. That should be enough to balance Illinois' annual budget and begin chipping away at a backlog of roughly $8 billion in old bills.

The tax move inspired a day of taunts across state borders and finger-pointing between parties.

"Years ago Wisconsin had a tourism advertising campaign targeted to Illinois with the motto, ‘Escape to Wisconsin,'" Wisconsin Gov. Scott Walker said in a statement. "Today we renew that call to Illinois businesses, ‘Escape to Wisconsin.' You are welcome here."

Illinois state Sen. Dan Duffy, a Republican, labeled the tax increase "the nuclear bomb of jobs bills."

There was even some carping from Illinois Democrats. Chicago Mayor Richard Daley predicted jobs will start trickling out of Illinois with little fanfare.

"Businesses don't have press conferences like this and announce they're moving 50 people out, 60 people out, 70 people," Daley said at an event in Chicago.

But Illinois' governor rejected the idea that the increase would allow other states to lure jobs away. "Lots of luck to them, but that's not going to happen," Quinn said at a news conference Wednesday.

Businesses look at more than taxes when making financial decisions, Quinn said. They also look at whether state government is stable and able to provide good roads and schools.

"It's important for their state government not to be a fiscal basket case," Quinn said.