Tuesday, January 10, 2012

Quinn signs tax breaks; says he is ready to take on pension changes

By Jamey Dunn

Gov. Pat Quinn today signed a tax break for low-income workers and said changes to the public employee pension systems are a top priority for him in 2012.

Quinn signed Senate Bill 400, which will increase the Earned Income Tax Credit (EITC) from 5 percent to 10 percent of the federal credit over two years. The increase will start for tax year 2012, moving it up to 7.5 percent of the federal credit, so it will not apply in the coming months as Illinoisans are filing their 2011 income tax returns.

According to Quinn about 935,000 households will benefit from the credit. He said a single mother earning $12,800 a year would save about $150 on her taxes, and a family of five with a household income of $30,000 would save about $199 this year. “It’s very important here in Illinois that we help parents raising children, parents who are working, and they are working hard and they are living from check to check every month. We want to make sure that those paychecks have enough money for the family to pay its bills and raise their children right. So that’s really our mission in Illinois, to help everyday people raising children living form paycheck to paycheck,” Quinn said today at a bill signing event.

Supporters of the increase argue that it will also help to spur local economies. “That family is not going to admire money in a bank vault, especially now. They are going to go out and spend the money in their local economy, creating jobs for local businesses in particular,” Quinn said. “There are some who think that the Earned Income Tax Credit and tax relief for working families is not part of job creation, and they’re just plain wrong.”

Rhonda Jones, a single mother who has three children in college and two more in high school, said she has often spent money from the EITC on necessities, such as car repair, children’s clothes or food. “The Earned Income Tax Credit has helped me out of a lot of jams when I have found it hard to make ends meet,” she said at today’s bill signing.

The new law also increases the $2,000 personal tax exemption by $50 and links it to federal inflation. Sponsor Sen. Toi Hutchinson said if the exemption had been indexed to inflation when the income tax was first created, the exemption would be more than $6,000 today. “That would be $24,000 for a family of four that would be untaxed — $24,000 off the top — had they been a little more progressive when they instituted the income tax in the beginning,” Hutchinson said. “Because we didn’t think that far, we’re doing it today. So, yes, it can seem insignificant right now; the point is indexing so that it keeps up with the times.”

Some Republicans traditionally opposed to new spending supported the EITC increase. “This is an opportunity to help people grab the bottom lung of the ladder, to start to get away from the dependency of welfare and get to work,” Sen. Matt Murphy of Palatine said during floor debate of the plan This is a reasonable piece of tax relief for most who get that tax credit. It’ something that I’d like to see—on both sided of the aisle—us support because it is the right thing to do.” .

But opponents of the credit, which was part of a package that also offered tax breaks to businesses threatening to leave the state, said Illinois cannot afford to hand out tax cuts. Quinn signed the corporate tax break bill late last year. The overall package is expected to cost about $300 million next fiscal year and $350 million in fiscal year 2014. According to Quinn’s budget office, the bill he signed today will cost $55 million in FY 2013 and $105 million in FY 2014. “Where will the money come from when we have $8 billion in unpaid bills, we have debt, our credit score is going down the tubes, we’re listed as the 48th worst-run state in the union? Where will the money come from?” asked Sen. Chris Lauzen, an Aurora Republican. Quinn’s own budget analysis shows that the state ending the current fiscal year with a $507 million deficit, and Moody’s Investor Services downgraded the state’s credit rating to the worst in the nation last week. Two other rating agencies did not downgrade Illinois but gave firm warnings about the possibility of future downgrades.

Quinn defended the cost of the credit today. “We can certainly afford this. It think we can’t afford not to do this. … I really think the EITC more than pays for itself in terms of economic growth and jobs.”

However, he added, “It is important that we take this year, 2012, and do some hard things when it comes to the finances for Illinois, and that begins with pension reform.” Quinn said he is willing to touch the third rail of pension reform, benefits for workers who were hired before benefit changes that went into effect last year. “Now we have to address the issues of our current employees but do it in a way that’s constitutional and fair and definitely something that involves everybody.”

Union officials maintain that changes to employee benefits hired before the pension revamp would be unconstitutional. Senate President John Cullerton has also questioned the constitutionality of such proposals.

Quinn said he wants to address growing pension costs to free up revenue for spending on education, public safety and health care. “This is a major mountain to climb this year, and I’m willing to lead the expedition,” Quinn said. “We’re going to get this done once and for all. ... For 30 years, three decades, governors and legislatures didn’t do enough. They let it go. It’s time now to tighten up and get it done.” He has formed working groups to take on the issue and wants to hear from all stakeholders involved. Quinn refused to comment on what specific changes he would support. “I think it’s important not to say what we’re going to do until everybody has a chance to speak.”

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