What businesses need to know about Illinois' new budget: The good, the bad and the ugly

  • State gas tax comparison graphic

    State gas tax comparison graphic

 
Posted5/15/2022 1:00 AM

Do you remember opening your very first paycheck at your very first job?

I remember running the numbers a thousand times in my head: $5.15 an hour times 22 hours, which transmitted to my 16-year-old brain that I was officially rich. But as I learned, my paycheck wasn't written for $113.30. My father pulled up his chair and explained something I'd soon understand as inevitable: taxes.

 

Taxes are a huge cost of doing business, but Illinois makes them worse with its lack of certainty. The new state budget is filled with examples that generate the same sinking feeling that first paycheck did.

Last month, the Illinois General Assembly passed a state budget earlier than ever, touting a record $46.5 billion in spending. Lawmakers clapped themselves on the back for their strong and early efforts ahead of an election. But Illinois is still projected to spend more than it takes in for the 21st consecutive year.

Here's what Illinois businesses need to know about the budget -- the good, the bad and the ugly.

The good

Illinois lawmakers used some of the $16 billion Illinois received in federal aid to enact tax cuts for Illinois families. Residents and businesses will see $1.8 billion in short-term cuts and delays to gas, grocery, property and other taxes, worth about $556 for the average family.

Included in the relief package are:

• A one-year suspension of Illinois' 1% grocery tax.

• A six-month delay of the next automatic gas tax hike. Then drivers will see two increases: 2.2 cents on Jan. 1, 2023; and an estimated 3.8 cents on July 1, 2023.

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• An expansion of the Earned Income Tax Credit for low-income residents, making it more generous and available to more workers. This is the only permanent change.

• A one-time income tax credit for joint filers making up to $400,000 a year, worth $100 for joint filers plus an additional $100 per child.

• A one-time, $300 property-tax rebate for state residents.

The stated aim of this plan is to put more money into Illinoisans' pockets. The real aim may be to spread some cheer before campaign season, given that most of these tax breaks will expire within one year.

The bad

Lawmakers didn't use the federal windfall to close the deficit in the state unemployment insurance trust fund or repay the federal loan used to prop up the fund during the pandemic. Now job creators and small businesses must do so, and they are facing job-killing state and federal payroll hikes.

                                                                                                                                                                                                                       
 

The General Assembly made just a partial $2.7 billion payment on the $4.6 billion loan. It also did nothing to refill the fund back to its pre-pandemic, $1.9 billion balance.

Now, workers and businesses will get hit with both state tax hikes and benefit cuts, because there's no federal aid left and virtually no alternative. Because Illinois will still have its outstanding federal unemployment loan, an automatic federal payroll tax hike is expected Nov. 10 -- just two days after the election. Next, automatic state payroll tax increases and benefit cuts will begin Jan. 1.

The ugly

The most egregious and strange item in the budget is a measure requiring gas stations to "announce" the news of the six-month delay in the automatic gas tax hike with a 4-inch by 8-inch, bold sign on their pumps.

It should say: "We're increasing your gas taxes, but we've delayed it until after the election. If you vote for us again, expect more of the same."

Even worse, gas station owners must post the signs or face a criminal fine of $500 per day.

Illinois already ranks No. 2 in the nation for highest gas taxes and the gas tax is only delayed until the election is safely over. This is the government requiring private businesses to campaign for them.

The Illinois Fuel and Retail Association said they will fight it.

Taxes hit us all from that first paycheck on, but government still has a responsibility to be fair. As businesses look over this 2023 state budget, they should be asking: Do I like how Illinois is treating me and my money? And after I recover from the newest shock, what can I do about it?

• Matt Paprocki is president of the Illinois Policy Institute.

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