Illinois Gov. J.B. Pritzker’s proposed constitutional amendment allowing the state to adopt a progressive income tax rate structure is one step away from heading to the November 2020 ballot.
The House Revenue and Finance Committee advanced the bill along a party-line vote to the House floor. Only Democrats supported the ballot measure the first-year Democratic governor has made the lynchpin of his plans to stabilize state government finances; if voters approve the graduated tax, he wants to adopt a rate structure that will generate more than $3 billion in new revenue annually by raising taxes on the top 3% of earners.
The Senate passed SJRCA1 on May 1. Democrats hold the three-fifths super majority needed to place the measure on the ballot but the administration and the legislation’s backers are still working to get to the 71 votes needed in the House from among the 74 Democrats.
The struggle was underscored by Rep. Jonathan Carroll, D-Northbrook, who cast a yes vote in committee Monday because he said the issue is too important not to go to the floor while cautioning sponsors against counting on his vote. “I still have strong reservations,” he said.
A vote on the amendment could come as soon as this week but several legislative sources said they don’t expect one until next week.
The General Assembly is moving closer to its May 31 adjournment date with a long list of legislation still to complete including an operating budget, a capital budget, and legislation legalizing recreational cannabis and sports betting.
The House may take up the amendment alone, leaving companion bills to set a rate structure and offer property tax relief for future votes. Steve Brown, a spokesman for House Speaker Michael Madigan, D-Chicago, said a vote was not yet scheduled by the bill’s sponsor and leaders continued to work with the administration on timing.
The administration has been pushing for adoption of both the amendment and a rate structure to promote in tandem ahead of the November 2020 election. The Senate also passed local property tax relief along with the rate structure to help win over votes, and eliminated the state’s estate tax to offset the impact of the higher income tax on top earners.
State Rep. Rep. Mike Zalewski, D-Riverside, who chairs the committee and is sponsoring the rate legislation didn’t offer a timeline for its release during the hearing Monday but said it would include property tax relief.
Republicans and Democrats bickered during the hearing over the need for the tax.
“What this gives us in Illinois the opportunity to do is solve our financial problems [and] eliminate our structural deficit so we can stop accumulating debts and do it in a manner that gives relief to those that are suffering the most under our tax system,” said the amendment’s House sponsor, Rep. Robert Martwick, D-Chicago.
House Minority Leader Jim Durkin, R-Western Springs, questioned the rush when the legislature is not required to approve the ballot measure until 180 days before the election date. "I think you are asking for a lot in a very short amount of time particularly when the biggest issue we have right now is our budget,” Durkin said.
Republicans warn that the shift to a graduated tax will smooth the way for future increases that go beyond top earners. Democrats counter that under either structure tax hikes are a hard sell.
The GOP also questioned the need for any tax hikes given the state’s April $1.5 billion revenue windfall. Administration official Cameron Mock countered that the upward revision of revenue estimates aren’t sufficient “to close the long term gap” or allow the state to “continue to reinvest.”
The committee received comments from 2,049 proponents and 6,428 opponents of the legislation.
Opponents warned that some business and might flee the state and Illinois Policy Institute chief economist Orphe Divounguy told lawmakers the tax wouldn’t solve the state’s pension woes, making likely that further hikes would be needed.
The current personal rate is 4.95% and the corporate rate is 7%. The administration’s proposed rate structure would raise the top personal rate to 7.95% and the Senate bill would raise it to 7.99%. The administration would raise the corporate rate to 7.95% and the Senate version to 7.99%.
If the measure goes to a public vote, either 60% of voters casting a decision on the measure or a majority of those voting in the election need to approve it.
The state’s continued drive to raise new revenue comes as Moody’s Investors Service issued a warning that the state is just one of two along with New Jersey that is poorly prepared to weather the next recession.
While a recession may not loom next year “states are aware that a downturn will come eventually, however, and are building reserves to prepare,” Moody’s wrote.
“While most states have healthy reserves and inherently strong fiscal flexibility, Illinois and New Jersey both have low levels of reserves relative to the potential revenue decline in our recession scenario. In addition, they both show weakness in their pension risk scores,” said analyst Emily Raimes.
“These credits could weaken more or faster than most states” depending on the depth of the next recession, warned the report. Illinois has little breathing room as Moody’s rates it at the lowest investment grade level of Baa3 with a stable outlook.
