Illinois boosts taxes by 66%

[Deleted]

By DEANNA BELLANDI, Associated Press Deanna Bellandi, Associated Press – 37 mins ago

SPRINGFIELD, Ill. – Illinois Gov. Pat Quinn defended a massive increase in state income taxes passed by lawmakers Wednesday and promised to quickly sign the measure to help heal the state's ailing finances.

Lawmakers worked overnight to pass the increase to raise the personal income tax rate from 3 percent to 5 percent for four years — a 66 percent increase. Corporate income taxes also will rise, but Quinn rejected the notion that it would decimate businesses.

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.

"It's important for their state government not to be a fiscal basket case," Quinn told reporters outside his Capitol office.

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

The tax increase 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 said Republicans should have supported some parts of the plan instead of voting against everything. 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.

"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 3.75 percent and that same taxpayer will then owe $1,250.

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.

Republicans also 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.

Governors of some neighboring states quickly jumped on the issue. Republican Wisconsin Gov. Scott Walker, who took office last week has already proposed a tax cut for businesses that relocate to Wisconsin from other states, invited companies to head north.

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

Quinn scoffed at the notion. "Lots of luck to them, but that's not going to happen."

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.

Democrats also 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.

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.

Where's Windy when we need him?

[BeenThere...DoneThat...]

...moved out of state, I'm thinking... but I did see this on the news and I shuddered...


~~~~~~~
Local leaders sort through tax hike confusion
... ... It proposed an increase in the state income tax from the current rate of 3 percent to a 5 percent. The proposal allowed the income tax to start coming out of Illinois resident’s paychecks immediately. ... ... Read article here: www.suntimes.com/news/3264249-418/tax-state-illinois-senate-tuesday.html

[❤ mollymouser ❤]

Why am I skeptical that "temporary tax increases" become "permanent tax increases?"

[daennera]

I don't know why people still live in IL, especially Cook County where taxes are highest.

IL long ago put out the "not welcome" sign for businesses.

I just don't get why people stay.

[❤ mollymouser ❤]

So Illinois tax rate is going up to 5 percent? That still seems like a bargain compared to the 10% we're paying in California (for incomes over $47,000), but I know that these things are all relative, of course.

[sarcasticgirl]

my husband and I have recently started kicking around the idea of moving to Texas, where I lived for 25 years before moving to Chicago. Needless to say, this has been a pretty big part of it.
The sales tax is insanely high (highest in the country, I believe) and now our state income tax is up to 5%. The way the state government is run, this won't solve a thing!

[Opti]

What is the sales tax in Illinois? I thought the worst was parts of California or NYC. Didn't someone post about 9% or higher in CA last year on MSN?

[quotequeen]

Jan 12, 2011 16:52:32 GMT -5 ❤ mollymouser ❤ said:

So Illinois tax rate is going up to 5 percent? That still seems like a bargain compared to the 10% we're paying in California (for incomes over $47,000), but I know that these things are all relative, of course.

You have to look at all the state taxes as a whole. We already have one of (if not the?) highest sales tax rates and high property taxes as well.

[Epiphany]

I live in IL and was very dismayed to see this today. I live on the border of IL/IA and taxes between the two states are discussed a lot in our area. In general, Iowa has higher income tax but really low property tax. You also have to pay a lot more for vehicle registration. IL taxes food like at grocery stores but Iowa doesn't.

But now with this increase it wipes all that out and Iowa is the sure winner. Of course I love how there is no talk of cutting gov't workers pensions (funding their own or something) or other large spending cuts, just tax more which seems to always be the answer in IL even in our local gov't. I also love the part about them not paying their overdue bills yet...

[quotequeen]

From Wikipedia:

The city of Chicago previously had the highest total sales tax of all major U.S. cities (10.75%), which was a major reference point until the rate was decreased to 9.75% as of July 1, 2010. It is also one of the most complex. 9.75% is levied on all non-perishable goods purchased, while 2% is levied on qualifying food, drugs, medicines and medical appliances. The Illinois Department of Revenue collects a 3% Chicago Soft Drink Tax and a 1% Metropolitan Pier and Exposition Authority (MPEA) "Food and Beverage Tax", on prepared food and beverage purchases in the downtown area (These "downtown" boundaries are: Surf Street on the north, Ashland Avenue on the west, Stevenson Expressway (I-55) on the south, & Lake Michigan on the east. Furthermore, O'Hare and Midway airports also fall under the 1% MPEA tax district). In addition, the Chicago Department of Revenue collects additional sales taxes on items such as fountain drinks, bottled water, liquor, and cigarettes.

[Epiphany]

Oh and if I'm living in a state that's being compared to california financially, I know I better be running scared.

[Tiny]

Jan 12, 2011 16:50:20 GMT -5 @daennera said:

I don't know why people still live in IL, especially Cook County where taxes are highest.

IL long ago put out the "not welcome" sign for businesses.

I just don't get why people stay.

Because it's Home?
It's also hard to compare tax apples to tax apples when moving to another state - there's so many taxes at the state level:
Income, various tiers of sales taxes, property taxes, city/village/town taxes...
If I move to a state with no income tax will there be other taxes (or fees) on my spending/house/etc that make up for it?
also there's no gaurentee that my job will pay as much somewhere where the taxes are lower... I might have the same 'buying power" or 'saving power" as I do here.
Of course I could be totally wrong. I'm math challenged and figuring it all out involves math...

[❤ mollymouser ❤]

Jan 12, 2011 17:00:05 GMT -5 Opti said:

What is the sales tax in Illinois? I thought the worst was parts of California or NYC. Didn't someone post about 9% or higher in CA last year on MSN?

In our county, sales tax is 8.975%.... at least last time I checked.

[The Walk of the Penguin Mich]

I pay nearly 10% in state and local taxes right now in KY. Granted, property and sales tax (7%) are less, but we get hit with a school tax on everything from car registrations to electric and cable bills.

[Sum Dum Gai]

Before you start dissing CA you have to look at the total picture. Our sales tax is pretty high (ranges from 8.75 to about 9.75 depending on the city), but our property taxes are only 1%, not everything is subject to the sales tax, and our state income tax tops out at 10.3% but you have to earn over a million a year to hit that. Granted the bracket right below that is 9.3% on income from $47k to a million. You do get a standard deduction and a few others on state income taxes too, so that helps some. Yeah, the tax picture here kinds sucks.

On some level though it's way better this way. I'd rather pay 9% on my $100k salary and 1% on my $300k house. In some states I'd only pay 1% on my salary, but 4% or more on the house.

[Opti]

I decided to google the Illinois tax rates. It appears certain towns can be higher, Bellville in St. Clair county was listed at 8.6%. The below is probably 2009 information.

The state sales tax in Illinois is assessed on three categories: 1) food and prescription and non-prescription drugs, 2) Vehicles, and 3) other general merchandise. Qualifying food, drug and medical appliance purchases are taxed at a base rate of 1%. Vehicles, or items that require a title and registration are taxed at a base rate of 6.25%. Other general merchandise is taxed at 6.25% and include sales of most tangible personal property including sales of soft drinks, prepared food including food purchased at restaurants,

[AgeOfEnlightenmentSCP]

Um, anyone mention that BUSINESS taxes were jacked up as well? The corporate income and dividend tax went up almost 50% as well.

People were fleeing IL during the boom- to the tune of three quarters of a million people a year from 2002 - 2007. All evidence points to "brain drain" which means the people leaving are the well educated and/or productive types.

IL is the next MI. It's the laughing stock of the country right now.

I wish I could have seen this coming. If I had, I would say, "SEE, I TOLD YOU SO" right now...oh, wait...I did see this coming. And I did say so.

[AgeOfEnlightenmentSCP]

Jan 12, 2011 16:49:26 GMT -5 ❤ mollymouser ❤ said:

Why am I skeptical that "temporary tax increases" become "permanent tax increases?"

Relax. Our "temporary tolls" were supposed to be gone from the Tollway 21 years ago.

[AgeOfEnlightenmentSCP]

Ooops! Did I say "our"...I meant THEIR!!!!! WHOOOOOOOO!!!!! I'm out!!!!!!!!!!!!!!!!!!!!!!!!!!!

[Opti]

I did read that the corporate tax went up enough to make it the highest in the nation according to the article I skimmed online. That is a bad idea.

[domeasingold]

We live in Illinois. Crook County to be exact. While I do not like the fact that the tax has increased it is now a fact of life. People that continue to live here will have to accept it. It's like the any other business today. If you don't like it find another place to live. But it is hard to pick up and move when your roots have been in place for so long. Do you know what quality of life you would be leaving for?

[BeenThere...DoneThat...]

<<< Do you know what quality of life you would be leaving for? >>>

...come on in... the water's warm...

[MN-Investor]

"my husband and I have recently started kicking around the idea of moving to Texas, where I lived for 25 years before moving to Chicago. Needless to say, this has been a pretty big part of it."

Texas looks like it will be facing budget shortfalls too. Some reports say $15 billion, some say $25 billion.

States love to push problems to succeeding years, leaving future politicians to make the hard decisions.

[lurkyloo]

CA has low property taxes percentage-wise, but the house prices here are so relatively high I think we wind up paying similar amounts to say, Midwestern states with 2%ish property tax rates--maybe more. And counting deductions, DH and I still paid more in CA state tax than we would in IL, even at a flat 5% instead of 3%.

I have to say, I love the clause about the tax increase becoming null and void if the legislators exceed the designated spending cap. Also, moving to Wisconsin is I think not exactly a slam-dunk. State income tax rates there look to be 4.6-7.75% (i.e. not much better), and it's a community property state as well, where I don't believe IL is?

[linarex]

I live in IL, and I wish that they would consider actually cutting SPENDING instead of increase the income taxes. I could think of a few "services" we could do without - starting with the Traffic Management Authority that so kindly directs people during rush hour morning traffic, even though there are these things called traffic lights installed at most intersections. That said, I live in Chicago and it really is a fantastic city to live in if you're willing and able to pay the price of living here.

And I'm 100% sure that temporary = permanent.

[Urban Chicago]

I too am sure that this increase will be permanent. We do have high sales taxes, but at least in the city, property taxes are fairly low.

The people who really get reamed are those in the Cook County suburbs.

And by the way, the section intended to increase corporate taxes did not pass.

[Wisconsin Beth]

Jan 12, 2011 21:33:36 GMT -5 lurkyloo said:

CA has low property taxes percentage-wise, but the house prices here are so relatively high I think we wind up paying similar amounts to say, Midwestern states with 2%ish property tax rates--maybe more. And counting deductions, DH and I still paid more in CA state tax than we would in IL, even at a flat 5% instead of 3%.

I have to say, I love the clause about the tax increase becoming null and void if the legislators exceed the designated spending cap. Also, moving to Wisconsin is I think not exactly a slam-dunk. State income tax rates there look to be 4.6-7.75% (i.e. not much better), and it's a community property state as well, where I don't believe IL is?

Scott Walker is our new governor. He's promised to bring jobs to Wisconsin so yeah, he's gonna be all over this.

[Urban Chicago]

Scott Walker is our new governor. He's promised to bring jobs to Wisconsin so yeah, he's gonna be all over this.

Read more: notmsnmoney.proboards.com/index.cgi?board=finance&action=display&thread=1481#ixzz1AvgoF55Z

Do you all miss Tommy Thompson? He was governor when I lived in WI

[Wisconsin Beth]

Not really. But then again, I think ALL politicians are idiots and morons, simply because they're politicians. If they weren't idiots and morons, they'd have gone into something else... Sort of a circular argument!

[quotequeen]

Jan 13, 2011 10:10:46 GMT -5 Urban Chicago said:

I too am sure that this increase will be permanent. We do have high sales taxes, but at least in the city, property taxes are fairly low.

The people who really get reamed are those in the Cook County suburbs.

And by the way, the section intended to increase corporate taxes did not pass.

I don't think my property taxes are low!