Pritzker income tax plan ranges from 4.75 to 7.95 percent; GOP cries foul
Gov. J.B. Pritzker pitched a new graduated income tax system Thursday that he called essential to Illinois' stability even as suburban Republicans launched a campaign of resistance that will last until a November 2020 referendum on the issue.
"The most important thing to do is to stabilize the finances of the state," the new Democratic governor said.
IN THE VIDEO ABOVE: Pritzker talks about marijuana, new taxFind specific topics addressed by Gov. J.B. Pritzker in Monday's meeting with the Daily Herald editorial board.
The budget: 0:00-5:35
Graduated income tax: 5:35-15:05
Why people are leaving the state: 15:05-17:35
Tax on insurance companies: 18:05-19:36
Legalizing marijuana: 19:39-28:40
Sports betting: 28:40-30:36
Increasing minimum wage: 30:36-35:21
Pension issue: 35:21-43:34
What was unexpected after becoming governor? 47:38-end
"For years, we've run a structural deficit."
The proposal, which requires a constitutional amendment, creates six tax brackets instead of Illinois' flat tax of 4.95 percent. The lowest bracket for income up to $10,000 is 4.75 percent, while the highest for incomes of more than $1 million is 7.95 percent.
The change would generate $3.4 billion, Pritzker estimated.
"It's wrong that I would pay the same tax rate as someone earning $100,000," said Pritzker, a Hyatt hotel heir. Meanwhile, "everyone who earns up to $250,000 will pay the same or less than what they're paying today. In some cases this reduction will be very modest, and in some cases, especially for families with children, it will amount to hundreds of dollars."
GOP Senate and House leaders both vowed to fight the tax change, which requires a three-fifths supermajority vote in the General Assembly and 60 percent of voters to approve.
"This is the first step toward a more massive tax hike," Republican state Rep. David McSweeney of Barrington Hills predicted.
"This is not the real plan. It's a Trojan horse," he added, saying once the Constitution is changed "they'll continue to jack up rates dramatically over time."
"I think there is no reason to believe the third time is a charm when it comes to income tax increases," state Rep. Grant Wehrli of Naperville said, citing tax increases in 2011, later partially rolled back, and in 2017. "Instead of looking at any decrease in spending, it's all on the revenue," he said.
Pritzker warned that with a $3.2 billion deficit in his proposed 2019-2020 budget, plus about $15 billion in unpaid bills, Illinois faces a financial abyss that cuts to spending won't abate.
The proposed income tax rates work on a sliding scale that has people who file as an individual or jointly paying less if their net income is $250,000 or less. That's because the first $10,000 would be taxed at 4.75 percent, then the next $90,000 would be taxed at 4.9 percent, while the final $150,000 would be taxed at the current 4.95 percent rate.
Someone who currently has a net income of $250,000 pays $12,375 in income taxes to the state, but that person would see the state income taxes drop $65 under the proposed tax rate structure.
Income between $250,000 and $500,000 would be taxed at 7.75 percent, and earnings of $500,000 to $1 million at 7.85 percent. However, the rate ramp-up affects only those making less than $1 million annually. Anyone whose net income exceeds $1 million pays a flat 7.95 percent rate, Pritzker's plan states.
The plan also offers 20 percent increases in the property tax credit for individual homeowners making less than $250,000 or couples earning less than $500,000. Tax credits of up to $100 per child depending on income are in the mix as well.
According to the National Conference of State Legislatures, all but six of the 41 states with broad-based income taxes use a graduated rate structure.
Republican state Rep. Tom Morrison of Palatine warned of an exodus by high-income residents.
"The numbers cited for revenue assume that Illinois taxpayers are a static number," Morrison said.
He cautioned it would be easy for Democrats to raise taxes with six brackets.
"It becomes a divide-and-conquer situation. If policymakers sell a tax increase as just affecting a small percentage of the population, then the rest will say, 'fine,'" Morrison said.
Democratic state Sen. Laura Murphy of Des Plaines, however, thinks Pritzker was living up to his campaign platform of providing a middle-class tax cut and "there's nothing to indicate he won't live up to his word," she said.
And with a referendum, "it's not a slam dunk," Democratic Sen. Cristina Castro of Elgin said. "Republicans keep putting out misinformation on the process -- the end product is voted on by the people."