By Rod Thomson
Illinois News Network
Illinoisans have never rewarded politicians for tax hikes, one major reason why extending the temporary income tax increase is facing political headwinds.
Three out of four Republicans vying for the gubernatorial nomination say they are opposed to the extension and would veto it as governor. The fourth says he is opposed to it but that it should be on the table for negotiations. And perhaps most tellingly, Democratic Gov. Pat Quinn is being coy on the issue, preferring to talk about other issues instead.
But the issue of extending the temporary tax hike, due to sunset Jan. 1, 2015, will work its will on state politics throughout 2014.
“It will be the issue of next year,” said long-time political analyst Thom Serafin, of Chicago-based Serafin & Associates. “I’m surprised Democrats have let that happen.”
Because of internal politics, Democrats did not move to extend the issue in 2013, leaving it to be decided during an election year. And it’s a whopper for the state’s budget and political futures.
In 2011, Democrat lawmakers approved the tax increase in an effort to augment a state budget that was sagging under weak revenues from economic stagnation and the rising costs of government, such as massive pension liabilities. Personal income tax rates were jacked up from 3 percent to 5 percent, and the corporate tax was raised from 4.8 percent to 7 percent.
Three out of four Republican gubernatorial candidates oppose any extension outright and say they will veto it if they become governor. Those candidates are state Sen. Kirk Dillard of Hinsdale, businessman Bruce Rauner and state Sen. Bill Brady of Bloomington.
“I’d veto it so fast it would make your head spin,” Rauner said. “We have got to reduce the tax burden on our economy, on homeowners, we’ve got to reduce the spending.”
Dillard and Brady are as adamant. Dillard said the Republicans are laying out a plan to roll back the tax “and get our economy rolling again.” And Brady points out that “states that do not have an income tax are the states that are most fiscally sound and solvent.”
Illinois Treasurer Dan Rutherford leaves the door ajar.
“I’m not going to be a governor who promises you I won’t look at revenue if they continue to drive this car off the cliff,” Rutherford said, pointing out that “several billion dollars” will no longer be flowing into the state coffers if it is eliminated. But he seems to be open to it for negotiating purposes.
“I don’t want it. I don’t want it. I don’t want it,” he said. “But it may need to be on the table for negotiation of some form or another.”
The elimination of the tax would put a hole in the state budget, at least temporarily, of $3.75 billion annually.
Of course, part of the problem is that the Legislature has ramped up state spending in advance of the tax ending, making the apparent spending hole caused by losing the tax look larger.
Gov. Quinn just won’t talk about it right now, even when asked directly, preferring to discuss the pension fund crisis. The tax hike’s unpopularity during an election year makes it difficult for a Democrat running for re-election to outwardly support. But Democrats approved it originally, and powerful Democrat interests such as government unions favor it. That makes it difficult for a Democrat to oppose.
However, Quinn campaigned on raising incomes taxes by 33 percent but then signed the bill hiking them 67 percent, making him potentially vulnerable on the issue in the general election.
The temporary nature of the tax was politically necessary. Illinois politicians remember their history. Republican Richard Ogilvie was elected governor of Illinois in 1968 and instituted the state’s first income tax with the bipartisan help of then-Lt. Gov. Paul Simon. Simon ran against Dan Walker for the Democrat gubernatorial nomination and lost. Walker then went on to defeat Ogilvie in the 1972 general election. Both victories were secured on the strength of the income tax’s unpopularity.
So the 2011 law made the income tax hike temporary, setting its elimination for 2015. However, that sunset clause in the law does not put the rate all the way back to its original amount but to a 3.75 percent income tax rate on individuals and a 5.25 percent rate on businesses.
By the end of 2014, the tax hike will have drained an extra $25.7 billion from Illinois taxpayers, according to the Illinois Commission on Government Forecasting and Accountability. Unfortunately, the promise of the hike to pay down Illinois’ bills and stabilize the pension funds has gone unrealized. All of the money has been spent, but pension debt and the state’s overall debt have continued to grow.
In December, the state had a backlog of $7.6 billion in unpaid bills. The state’s unfunded pension liabilities have grown to nearly $100 billion, an increase of $17 billion since the tax was enacted.