Higher taxes, fees in plan to balance Illinois budget

SPRINGFIELD - Gov. Pat Quinn wants to raise income taxes, charge more for license plates and cigarettes and overhaul government pensions as he wrestles with an $11.5 billion hole in the state budget.

His administration disclosed Tuesday evening that Quinn will ask lawmakers to raise the personal income tax rate by 50 percent -- to 4.5 percent from 3 percent. But he wants to couple that with expanded tax breaks that would soften the blow.

By tripling the amount of income exempt from taxes, Quinn says, his plan would actually lower taxes for any family of four making up to $60,900. Nearly half of the state's taxpayers would see a drop in their tax bill, aides said.

When he addresses a joint session of the Illinois Legislature on Wednesday, Quinn will also propose a 10-day "holiday" from sales taxes on back-to-school items.

The Chicago Democrat portrayed his $59.8 billion budget as a straightforward alternative to the "show-biz" approach of his predecessor.

"It's much better to level with the people in a straightforward manner," Quinn told reporters after briefing Democratic lawmakers Tuesday. "The citizens of Illinois want honest leadership and they need straight talk."

But his budget proposal depends on cutting some corners.

It would lower contributions to pension systems by nearly $2.9 billion on the assumption that Illinois will save billions of dollars in coming decades by cutting retirement benefits for new state employees.

He also calls for dipping into special-purpose funds to pay for general expenses, keeping tax money that would otherwise go to local government and diverting money from the state road fund to help support a statewide construction program.

That long-awaited, $26 billion construction plan also would be funded by raising the cost of license plates by $20, to $79, and doubling the $10 fee for a driver's license. Mass transit construction would get a boost from an increase in the vehicle transfer fee.

The construction program would support 340,000 jobs around the state, Quinn aides said.

Schools and universities would see small increases: $174 million for elementary and secondary education and $40 million more for higher education.

And Quinn will seek a $1 increase in the tax on cigarettes, which now stands at 98 cents a pack, according to documents shown to lawmakers earlier Tuesday. The increase would be spread over two years.

He also promised to "cut the budget big-time" as he seeks to put state government back on solid financial ground.

His budget proposal calls for $850 million in spending cuts, on top of about $500 million he has already ordered. He would require government employees and retirees to pay more for health care coverage to save $200 million, and save $390 million by consolidating services -- combining the agencies that oversee natural resources and historic preservation, for instance.

The budget does not include money to open several historic sites that were closed by his predecessor, despite earlier statements by Quinn that he wanted to reopen them.

Quinn didn't propose cutting state jobs, but he did propose requiring employees to take four unpaid furlough days.

The governor, just six weeks after taking over for the impeached and ousted Rod Blagojevich, has a tough sales job ahead of him. Most lawmakers are open to tax increases but they need proof to take home to voters.

"He's gotta tell us: Where's this money going to go to? Where's his cuts going to come at? What's his reforms going to be?" said Sen. Terry Link, D-Waukegan.

Some legislative Democrats favor a gasoline-tax increase, something Quinn opposes.

Republicans are generally opposed to an income-tax increase or a hike in the corporate tax.

Revenue from higher taxes will fall short of projections because people will change habits to shield income, said Rep. Mark Beaubien, R-Barrington Hills. Taxing businesses in this economy, he said, would be devastating.

"People won't expand their businesses, they'll leave the state," Beaubien said. "They certainly won't come into the state. It's very counterproductive if you want to create jobs and help the economy."

Quinn proposes raising the corporate income tax rate to 7.2 percent, generating $350 million. he also wants to end about $100 million in corporate tax breaks, a proposal that has often been rejected in the past.

A sales tax holiday would ease the burden on families. Quinn wants to lift the 5 percent sales tax for 10 days in August on certain school-related items. That would cost as much as $50 million, an amount made up by letting retailers keep less of their service fee for collecting the tax.

The administration estimates its income tax increase would bring the state an additional $2.8 billion, even with the larger exemptions.

Normally, local governments would get a share of any income tax increase. Quinn's plan would keep all the additional money for the state, meaning cities would miss out on $287 million -- something Link said would go nowhere because of protests from city halls across the state.

Quinn also may take $200 million out of a variety of government funds that are supported by special fees and dedicated to particular programs. Such diversions were common under Blagojevich, who was removed from office in January.

The variety of increases could pose problems in convincing taxpayers to go along.

"If we have to make some difficult decisions, it would be easier for legislators if we had to deal with one, or at least a limited number of revenue enhancers, instead of a whole slew," said Sen. John Sullivan, R-Rushville.

<div class="infoBox"> <h1>More Coverage</h1> <div class="infoBoxContent"> <div class="infoArea"> <h2>Related documents</h2> <ul class="morePdf"> <li><a href="/pdf/statebudget2009.pdf">2009-10 State budget document </a></li> <li><a href="/pdf/illcapprojects.csv">Capital projects list </a></li> <h2>Stories</h2> <ul class="links"> <li><a href="/story/?id=279816" class="mediaItem">Quinn to suburbs: Someone's got to pay <span class="moreDate"> [03/18/09]</span></a></li> <li><a href="/story/?id=279768">Quinn wants to up driver fees to fund construction <span class="date"> [3/18/09]</span></a></li> <li><a href="/story/?id=279770">Quinn using tax breaks to soften increase<span class="date"> [3/18/09]</span></a></li> </ul> </ul> </div> </div> </div>