Legislative & Regulatory Update
LEGISLATURE PASSES 66% INCREASE IN CORPORATE & PERSONAL INCOME TAX;
BORROW $8.5 BILLION; NO WORKERS COMP REFORM
With only hours to spare the “lame duck” Illinois General Assembly early this morning approved a plan that will increase the state’s income tax by 66-percent, will borrow $8.5 billion, and put limits on how much the state can increase spending each year to 2%. The plan that was approved by lawmakers does not make any cuts to state spending. The bill now goes to Governor Pat Quinn, who during the gubernatorial campaign had called for an income tax increase of just 1%.
The income tax increase plan was a product of negotiations between Governor Pat Quinn (D-Chicago), House Speaker Michael Madigan (D-Chicago), and Senate President John Cullerton (D-Chicago) and was passed entirely by Democrats in the House and Senate. The legislation did not receive a single Republican vote.
The income tax increase bill, SB 2505, received the exact minimum number of votes to pass in both the House and the Senate. Of the 60 “yes” votes in the house, 11 of those votes came from Democrat legislators that were either retiring or had lost their election in November.
The personal income tax rate in Illinois will increase from the current 3% to 5% retroactive to January 1, 2011. In 2015, the rate will be reduced to 4% and in 2025 the rate will become 3.5%.
The corporate income tax rate will increase from 7.3% to 9.5% (when you include the state’s 2.5% personal property replacement tax). In 2015, the rate will fall to 7.75% and in 2025 the rate will return to 7.3%.
The tax increase plan will allow the state will borrow $8.5 billion in the coming days to pay for this year’s pension payment and to pay down the backlog of payments the state owes schools, local governments, social service providers, and others. The $8.5 billion will be repaid over 14 years with a half of a percentage point of the income tax increase.
The plan also suspends the net operating loss carry forward for the years 2011-2014.
Finally, the plan also reinstates the state’s estate tax. The estate tax in Illinois is roughly 13-percent and has a $2 million exemption.
Sponsors of the legislation ultimately dropped a plan that would have eliminated the 5% property tax credit that taxpayers claim on their annual income taxes in exchange for a rebate program that would have sent checks in the amount of $325 each spring to property tax owners.
A proposal to add an additional $1 tax to a pack of cigarettes was also removed.
Unfortunately, the Illinois General Assembly adjourned without voting on any workers compensation reforms. Over the past few weeks, a special Senate committee heard testimony around the state on the many, many problems with Illinois workers comp system. A rather “watered-down” proposal was floated in the last few days, but ended up on the trash heap late last night.
The new General Assembly will be sworn into office today, January 12, and the new General Assembly will return to Springfield the first week of February for the 2011 Spring Session.
If you’d like to see how your legislators voted on the income tax hike, click on the following links: