CHICAGO - Illinois would impose an income tax surcharge on millionaires to raise $1 billion for schools under a constitutional amendment proposed by state House Speaker Michael Madigan.
The first $1 million of an individual's income would continue to be taxed at the current personal rate with any additional income facing an additional 3 % surcharge on top of the current rate. The state currently taxes individual income at a flat rate, compared to others that use a graduated rate.
The powerful Chicago Democrat filed the amendment Thursday, saying it would help bolster school funding levels that have been crowded out due to the state's pension and liquidity struggles.
"This is not a complete solution to our education funding issues, but it is a fair and equitable way to reverse a decline brought on by the national economic problems and will help address a number of spending pressures that vary among school districts," he said.
The state would distribute the additional revenue to districts on a per pupil basis and schools would have flexibility in how they use the revenue.
"Some districts may see a need to use these resources for capital construction, while others will want to offer local property tax relief. Illinois is not a one-size-fits-all state and this increase on millionaires recognizes the need for school districts to set their own priorities when spending state dollars," Madigan said.
Madigan offered a chart comparing the state's tax liability to other Midwestern states should the surcharge take effect. The tax liability on $1.5 million of income would be on par with Kentucky and Missouri, below Iowa and Wisconsin, and above Michigan and Indiana.
Hearings on the plan are expected in the coming days. Lawmakers would need to approve the measure by May 5 in order for it to go to voters on the November general election ballot.
The surcharge is Madigan's second major tax proposal since the new session began. Last month, he introduced legislation to cut the state's business tax in half as state lawmakers shift their focus from pension reform to taxes.
Quinn and key lawmakers including Madigan have yet to say how the state should address the partial expiration of a temporary 2011 income tax hike.
If not extended or replaced by a new revenue source, the state faces a $1.6 billion deficit in its next budget and a $4 billion hole in fiscal 2016. Quinn is expected to take a position when he unveils his proposed fiscal 2015 budget next week. The administration did not immediately respond to a request for comment.
Illinois is the weakest rated state at the low-single A level.