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April 7, 2014

Quinn says Illinois can’t afford to let tax hike expire

By Lauren P. Duncan

The governor’s plan to give homeowners $500 back each year is a generous idea but may not work out, according to tax expert Ralph Martire.

Gov. Pat Quinn presented his annual budget address March 26 at the Capitol. In the 25-minute speech, Quinn emphasized his plan to stabilize revenues and prevent deep spending cuts in Illinois for the 2014-2015 fiscal year and future years. The crux of that plan is keeping the individual income tax at its present rate of 5 percent.

In 2011 legislators voted to temporarily increase the former 3 percent individual income tax rate to 5 percent. If the tax sunsets on Jan. 1, 2015, according to the original plan, next year’s budget would take a projected loss of $1.6 billion in revenues. 

Quinn doesn’t want taxpayers to be frustrated at the first mention of “income tax,” though. To make up for it, he’s offered a “guaranteed” $500 property tax refund every year for homeowners.

“Because of the progress the state has made with fiscal reforms over the past five years, families will benefit from the most significant property tax relief in Illinois history,” Quinn said.

Ralph Martire, executive director of the Center for Tax and Budget Accountability, who gave Quinn a grade of “A-” on his address, said the idea of $500 property tax refunds is a smart political move. However, Martire pointed out, the plan has its flaws.

“I think the methodology of providing the property tax relief is not really the best way you’d do it from a tax policy standpoint,” Martire said. “Cutting a $500 refund check is taxable income on your federal taxes. So the full value of that won’t be realized by Illinois taxpayers because roughly a third of it will end up being federal taxes.”

The refunds would also be hard to distribute. Martire said individuals who rent likely would not see any of that money, even though property tax costs are generally built into rent. 

Additionally, Martire said, the state doesn’t have the money for the refunds.

“The state simply can’t afford it even if we get the governor’s plan to maintain the [income tax] rate structure,” he said. 

Martire also critiqued Quinn’s failure to address the possibility of expanding the sales tax base and his call to increase education funding without insight on a way to raise that revenue.

Quinn did not reference in his budget plan any ideas for a reformed tax system. In December, Quinn said he thinks taxes should be based on the “ability to pay,” where wealthier individuals pay at a higher rate. The idea of a graduated or progressive tax system is being considered in the General Assembly, however. Sen. Don Harmon, D-Oak Park, and Rep. Naomi Jakobsson, D-Urbana, have initiated the conversation with “fair tax” proposals they introduced in March. The plans propose an amendment to the Illinois Constitution’s revenue article that would permit a progressive tax system. Presently, the constitution states Illinois can only have a flat tax, which means the rate is the same at all income levels.

Other proposed budget changes include Quinn’s plan to double the earned income tax credit over the next five years. Likewise, he wants to double the Monetary Award Program grants for college students and he wants to invest $1.5 billion in the Birth to Five program, a new initiative he announced in January that will help at-risk children by funding more assistance to young mothers and better access to early childhood education. 

Quinn also listed some changes he will not approve. Quinn said he won’t create service taxes, he won’t tax retirement income and Social Security, and he will not place a higher burden on property owners to fund local school districts. 

Overall, Martire said, the governor was “politically courageous” in his address.

“He is sitting here telling voters something that they need to hear, not anything that they want to hear … we can’t lose tax revenue and still fund those services you care about: education, health care, social services and public safety.” 

Source: Illinois Times