Deal in place to hike state income tax to 5.25%

Hike would last 4 years, then drop to 3.75%; cigarette tax also would rise

  • The deal laid out to Gov. Pat Quinn includes a $1-per-pack increase in the cigarette tax.

    The deal laid out to Gov. Pat Quinn includes a $1-per-pack increase in the cigarette tax.

 
 
Updated 1/7/2011 10:22 AM

SPRINGFIELD -- Top Democrats have agreed to ask lawmakers to raise the state income tax rate to 5.25 percent from 3 percent for the next four years and borrow about $8 billion to pay off the state's growing piles of unpaid bills.

Senate President John Cullerton Thursday evening laid out a deal among Gov. Pat Quinn and other top Democrats that also calls for a $1-per-pack increase in the cigarette tax and $325 yearly property tax credits for homeowners.

                                                                                                                                                                                                                       
 

While the $8 billion in loans would pay for the state's unpaid bills, the income tax increase would pay off those loans for four years, Cullerton said.

After four years, the income tax rate would roll back to 3.75 percent, still an increase over the current rate.

On spending, there would be a moratorium on new programs for the time being and a cap on overall state spending.

Cullerton cautioned that details of the plans could change, but that the Illinois House could take a vote on the plan perhaps on Sunday.

"There could be some tweaks to this," he said.

But an agreement between Quinn and Democratic leaders in the legislature is far from a guarantee that rank-and-file lawmakers who have recently campaigned against raising taxes will agree to go along.

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Suburban lawmakers in particular have been hesitant to get behind a tax hike, but property tax relief could be intended to draw support in the suburbs.

"Hopefully, that sweetens the pot for them," said Rep. David Miller, a Democrat from South suburban Lynwood.

But as the prospects of an income tax increase remained in limbo Thursday, lawmakers continued to hurriedly push other plans intended to try to tackle the state's disastrous finances.

Lawmakers want to win approval for a handful of controversial budget measures before the General Assembly's term ends next week.

Among them were major reforms to the state program to provide medical care to the poor.

The House sent Medicaid reforms to Gov. Pat Quinn that could save the cash-strapped state as much as $800 million. Republicans have called for the reforms for years, saying such cuts are needed before they'd consider more taxes.

                                                                                                                                                                                                                       
 

"I believe the reforms we are advancing will seriously cut down on that cost, enabling us to continue to provide quality health care to those truly in need," said Rep. Patti Bellock, a Hinsdale Republican who helped craft the plan.

The reforms try to save money by keeping people who aren't eligible for Medicaid off its rolls. And it forces the state to pay hospitals and doctors more quickly.

At a time when budget issues divide the two parties in Springfield more than any other, support for the reforms was a rare show of bipartisanship. Only four lawmakers voted no, including Rep. Rita Mayfield, a Waukegan Democrat.

"This bill shows that we can work together, both Democrats and Republicans, and that the House and Senate can pass significant reform," said Rep. Fred Crespo, a Hoffman Estates Democrat. "People are looking for us to shock the system, and I think this is one people will be happy with."

Quinn supports the reforms.

"Today is an important day for our state," Quinn said in a statement. "For too long we have simply talked about Medicaid reform; today we are following through with legislation that will help stabilize our budget and rebuild the foundations of our economy."

Some observers viewed the reforms as a way to lure Republican votes to a tax hike plan, but it may not work. Many Republicans worry about the effect increased taxes might have on businesses and their appetites to hire more workers.

But with an the income tax increase vote possibly looming soon, the House Thursday approved legislation to try to collect more sales taxes.

Now, some large Internet retailers such as Amazon.com and Overstock.com don't collect Illinois sales taxes because they don't have a physical Illinois presence.

Shoppers technically still owe the taxes, but the vast majority don't pay because they're unaware.

The legislation would force Amazon to collect the taxes because they have certain kinds of contracts with Illinois companies. It was approved by a 88-29 vote.

Illinois tax collectors may want to hold off on expecting a large influx of cash immediately, though. In other states that have tried the same move, the laws have been tied up in the courts.

• Daily Herald Staff Writer Jeff Engelhardt contributed to this story.