PI Original Angela Caputo Friday May 29th, 2009, 2:30pm

The New Tax Plan: Short-Term And Short-Sighted (UPDATED)

It's been an unnerving week down in Springfield, to say the least. The General Assembly has continued tiptoeing around the need for an income tax increase, even though many lawmakers recognize it's the only way to close a $12.6 billion budget hole and avert devastating ...

It's been an unnerving week down in Springfield, to say the least. The General Assembly has continued tiptoeing around the need for an income tax increase, even though many lawmakers recognize it's the only way to close a $12.6 billion budget hole and avert devastating cuts to the state's human services programs. Now comes news of a temporary tax hike proposal that appears to have the backing of Gov. Quinn and House Speaker Michael Madigan.

This latest plan uses Quinn's original proposal to hike the personal income tax rate from 3 percent to 4.5 percent, and the corporate income tax rate from 4.8 percent to 7.2 percent. But gone is any increase in the personal exemption (which had been included in Quinn's initial plan) and any targeted tax relief for low and middle-income families (which Quinn had suggested he supported earlier this week).

Most importantly, the plan would go into effect in July 2009 and sunset two years later.  Details on exactly how much revenue it would generate during each of those years remains murky, but it's likely in the $4 billion range. Thanks to a heads up on Twitter from reporter Melissa Hahn, you can read the full bill here.  And the Tribune reports that it may see a vote in the House today, with Quinn's blessing:

Quinn has previously said he would not support a temporary increase, but backed off that position today.

"I'm willing to do whatever necessary to get the revenue to pay the bills for the coming year," Quinn said.

Of course, there are several reasons why this proposal just doesn't cut it.

First off, as research by the non-profit advocacy group Voices For Illinois Children (VFIC) pointed out earlier this week, adopting a tax increase that's too small will put the state back in the hole in no time. Also, this latest plan abandons Quinn's tax fairness pledge by extending the higher taxes to low-income households that already bear a disproportionate burden.

Then there's the political impracticality to consider. "Elected officials will have to go back to their constituents and say 'I raised taxes and didn't solve any problems,'" the Center for Tax and Budget Accountability's Ralph Martire told us this morning. The Tribune also points to this risk for Quinn and the Democratic leaders:

If Quinn and his fellow Democratic legislators manage to pass an income tax increase but the budget still remains out of whack--a distinct possibility--that would put Quinn in the position of making unpopular cuts throughout state government while he is running for governor in 2010.

One of the political virtues of Sen. James Meeks' (D-Chicago) alternative plan to reform the income tax structure was that the extra revenue would eventually be used to help equalize the state's school funding formula.  In other words, it would allow legislators to say that they'd gone beyond simply raising taxes to "pay the bills."

Meanwhile, the six hunger strikers who've been protesting the potential cuts to state programs entered day three of their fast. Unfortunately, one of them, 87-year-old Mahaley Somerville of Lawndale, fell ill this morning and was hospitalized, lending new urgency to Chicago activist Maria Diaz's harsh words for state lawmakers yesterday: "[P]lease pay attention to what's going on. Look around you. Let's get it together and do the right thing."

UPDATE: More from the Tribune:

House Majority Leader Barbara Flynn Currie (D-Chicago) said the standard personal exemption, which is now $2,000 per person, would not rise under the most recent draft of the legislation. Currie, the sponsor of the temporary hike, said there is discussion about increasing the earned income tax credit, which is a more targeted tax break for the working poor. But she cautioned that the negotiations are still ongoing.

The Quinn administration said it was still pressing for tax relief through efforts to increase the personal exemption, the earned income tax credit and property tax credits.

 

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