CHICAGO — One day after Illinois lawmakers passed more than $300 million in tax relief to keep several companies from moving jobs out of the state, the top House Republican on Wednesday proposed legislation that would speed up the expiration of the corporate income tax hike driving company threats to flee.
Following the House’s lead earlier in the week, the Senate on Tuesday approved a tax package that will save the Chicago Board of Options Exchange and CME Group Inc., parent of the Chicago Mercantile Exchange and Chicago Board of Trade, a collective $85 million annually. The bill also extends an annual $15 million break to Sears Holdings Corp., which is based in a Chicago suburb.
Neighboring states had courted the companies with fiscal incentives after the state’s personal and corporate income tax rates rose in January and the companies warned that without some relief, they might relocate. To win partisan support, crafters of the package added in tax credits for low-income families. The deal also includes various tax credits for small businesses and research and development. Estimates of the total annual costs range from $330 million to $370 million.
Gov. Pat Quinn praised the deal and said he would sign it. “The package that is on the way to my desk is a win for workers and a win for employers in Illinois,” he said at a news conference late Tuesday. “At its core, this package is about jobs.”
Lawmakers expressed concerns that they were opening the floodgates to further threats from other companies. Before the vote early this year to raise taxes, many companies warned lawmakers that they would consider a move if the hikes were approved.
Facing a $15 billion deficit, Democrats who control the General Assembly pushed through the tax increases in January. It lifted the personal rate to 5% from 3% and the corporate rate to 7% from 4.8%. A portion is temporary.
The 5% rate remains in place until 2015 when it drops to 3.75% and then falls to 3.25% in 2025. The 7% corporate rate would remain in place until 2015 when it drops to 5.25% and then down to 4.8% in 2025.
The increases are expected to generate about $6.8 billion annually, including about $900 million from the corporate hike, and were credited by analysts and investors with easing the state’s liquidity and budget crisis, staving off further rating downgrades, and keeping investors interested in state bonds.
On Wednesday, House Republican Minority Leader Tom Cross proposed House Bill 3918, which would lower the corporate rate to 6% on income earned in 2013 and then down to 4.8% the following year. The bill also would lower the corporate rate by 0.25% when unemployment rises by 0.3% in a four-month span. Cross and fellow Republicans billed the plan as the best means to improve the state’s business climate.
“It is only a matter of time before more companies come knocking at our door looking for relief. The days of special tax deals need to end,” Cross said. “A better solution is to speed up the expiration of the Democrats’ tax hike.”
Steve Brown, spokesman for Democratic House Speaker Michael Madigan, said many members would like to roll back the tax. But he questioned how the state would make up for the lost revenue as it deals with billions of overdue bills and rising pension payments. “What programs would he like to repeal?” Brown said.
The proposal also faces tough competition for attention when lawmakers return for their regular session next month with the agenda topped by a fiscal 2013 budget and pension reform legislation.
Illinois holds the distinction among states of having a retirement plan with the lowest-funded ratio, 45.4%, with $75.7 billion of unfunded liabilities. Reform measures failed during the 2011 legislative sessions amid union opposition. The state recently learned that its fiscal 2013 pension payment will rise by about $1 billion to $5.3 billion, $440 million more than previously anticipated.
The state’s general obligation bonds are rated A1 by Moody’s Investors Service, A-plus by Standard & Poor’s, and A by Fitch Ratings.