Thursday, January 06, 2011

Cullerton outlines a tax plan

By Jamey Dunn

According to a member of Democratic leadership, legislators may be close to reaching a deal on a tax increase and borrowing plan that would pay off the state’s late bills.

The personal income tax would increase from 3 percent to 5.25 percent. Corporate income tax would go up from 4.8 percent to 8.4 percent. The state would borrow about $8.5 billion to pay off the state’s backlog of bills, using some of the revenue from the tax increase to pay off the bonds.

The personal income tax increase would bring in an estimated $6.1 billion, and the corporate increase would bring in about $1 billion.

After four years, the personal income tax rate would drop to 3.75 percent, operating under the assumption that the state would have paid off the $8.5 billion in borrowing by then. Senate President John Cullerton said the corporate income tax rate would drop along with the personal tax rate.

Local governments would not get any of the new funds, but they would not see a reduction in the portion they currently receive. There have been recent proposals to take away all of the money given to local governments out of income tax revenues.

“We’re going to pay our bills on time. We’ll pay all of our backlog bills in the first months of 2011. And we’re going to stay current going forward,” Cullerton said.

The proposal included property tax relief for property owners — there is no component for renters in the plan — which would come in the form of a tax credit this year. Next year and every year following, a check for $325 dollars would go to all who are eligible. Cullerton said. If the plan passes, checks would go out in early January of 2012.

Cullerton said legislators still plan to borrow nearly $4 billion to make the required payment to public employee pensions for the current fiscal year, but going forward, the payment would have to come out of the new revenue from the tax increase.

The plan would also include $377 million in revenue for an education fund from a $1-a-pack cigarette tax increase, which has already passed in the Senate. Cullerton said the fund would be used for “growth” in education but would not give any specifics.

The proposal would include some spending restraints. Cullerton said there would be a moratorium on new programs for the next three years.

“Just think about how we’re going to be after we pass this. We would have all our bills, all these people that are owed money — $8 billion dollars will go back into the economy — people will be paid on time. Our credit rating will be dramatically improved. We will then have a balanced budget with virtually no growth,” Cullerton said.

Some Republicans say a tax increase, in any form, is not the solution to the state’s budget woes. “At some point, the Illinois economy can’t sustain continuing to take more and more money out of it to filter it through the halls of state government. … A tax increase, even one this size, will work for a while, but it won’t work forever because at some point, if you keep spending more, there’s not enough money left in government coffers. The way to deal with that is to go into the areas where you’re spending and change those," said Mattoon Republican Sen. Dale Righter.

Cullerton said House Speaker Michael Madigan and Gov. Pat Quinn are on board with the plan, though he said it may see “tweaks” in the coming days. He said the House could take up a bill as soon as Sunday. Spokespeople for Madigan and Quinn would not confirm Cullerton’s statement.

The House passed another tax-related plan today backed by Cullerton. House Bill 3659 would require Internet vendors without brick-and-mortar locations in the state to collect sales tax on purchases made in Illinois. Cullerton said it is a way to bring in tax revenues that many Illinoisans already owe the state without even knowing it.

Milan Democratic Rep. Patrick Verschoore, the House sponsor of the bill, said the measure could bring in an estimated $70 million of lost revenue.

Opponents said the measure will just spur lawsuits, and it could be years before the state sees any money, if it ever does. Similar plans in other states, such as New York, have spurred lawsuits.

But Verschoore seemed to think the plan was worth a try if it could capture lost tax dollars for the state. “We’ll just have to see if it holds up,” he said in response to critics.


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