Illinois Senate Democrats pass $5.4B tax increase

Each Illinois household would pay an additional $1,125 in taxes each year, on average, under the Senate's tax-hike plan.

The Illinois Senate passed a series of tax hikes May 23 that will raise more than $5.4 billion in new tax revenue. Senate Bill 9 hikes income taxes, expands sales taxes, and increases franchise taxes.

The tax hikes are part of a record $37 billion budget that the Senate also passed May 23.

The Senate approved the tax hike bill by a 32-26 margin, with no Republicans voting in favor.

SB 9 does the following:

Hikes personal and corporate income taxes by $5 billion. The personal income tax rate increases to 4.95 percent from the current 3.75 percent rate. The corporate income tax rate rises to 7 percent from 5.25 percent.

Expands the sales tax to laundry and dry-cleaning services, as well as storage and other services to bring in $55 million.

Raises $54 million in cable and satellite TV taxes.

Closes corporate loopholes worth $125 million.

The total $5.4 billion tax hike means each Illinois household will eventually have to pay $1,125 in additional taxes annually.

Under the Democrats’ plan, new taxes will apply to many services previously untaxed. And because the Senate has failed to pass a property tax reform package, Illinoisans will continue to see their property taxes – the nation’s highest – go up even more.

Because the income tax hike is retroactive to Jan. 1, 2017, personal income taxpayers will pay an effective tax rate of 5.81 percent on their earnings for the remainder of the year.

It’s not clear what reforms might come with the tax hike since the Senate decided to break apart the so-called “grand bargain” budget legislation last week. Previously, the Senate had hoped to package as many as 13 bills together, meaning that if one bill did not pass, the entire package would fail.

Now, the Senate is voting on bills separately. That means it’s difficult to know what spending reforms, if any, will be part of the $5.4 billion tax hike or the budget.

But the fact that the Senate plans to spend a record $37 billion and to collect $5.4 billion in new taxes means Illinoisans can expect little in the way of reforms.

Tax hikes over reforms

Illinois Senate Democrats are choosing to hike taxes again rather than enact much-needed spending reforms.

This tax hike is reminiscent of 2011, when the General Assembly increased personal income taxes by 67 percent and corporate income taxes by 46 percent.

Illinois state government took in $32 billion in new tax revenues from 2011 through 2014, which relieved pressure to enact real spending reforms.

Lawmakers simply spent the money and left Illinois on a budgetary cliff when the tax hike expired. And because the state’s structural spending problems had gone unaddressed, and despite the $32 billion in new tax revenue, by 2014, unfunded pension liabilities had increased by more than $20 billion and the state’s bill backlog totaled $7 billion.

Real budget solutions exist

More tax hikes will only drive more residents to flee the state and punish those who can’t leave. And, as in 2011, tax hikes will only perpetuate the state’s structural problems and deflate the pressure to enact real change.

Illinois can no longer put off real spending reforms. Politicians have to pass a balanced budget that actually solves the state’s structural problems without tax hikes.

The Illinois Policy Institute has provided a reform road map – Budget Solutions 2018 – that balances the budget without tax hikes.

The plan provides tax relief to struggling homeowners through a comprehensive property tax reform package, begins an end to the pension crisis through 401(k)-style plans, and makes changes to curb bloated administrative expenses in higher education.

Most importantly, it doesn’t punish taxpayers for the political failures of the past few decades.

Illinoisans have paid for politicians’ ineptitude and corruption long enough. They deserve a reform budget and a state government that finally spends within its means.