Graduated plan that would tax more people at highest rate could see Senate vote Wednesday
Senate proposal also would end estate tax, add way to freeze school property taxes
SPRINGFIELD -- A graduated income tax package that differs slightly from one proposed in March by Democratic Gov. J.B. Pritzker advanced out of the Senate Executive Committee on Tuesday along party lines.
The full Senate could vote on the proposal Wednesday.
The three bills include a repeal of the Illinois estate tax and a conditional property tax freeze for school districts provided certain state funding requirements are met. All of the measures passed without any Republican support.
The Senate version -- included in Amendment 1 to Senate Bill 687 -- would raise the top income tax rate to 7.99% from 7.95% in the governor's plan and separates the rate structures for single and joint filers. For single filers, the maximum rate would kick in once a person makes $750,001, rather than $1 million in Pritzker's plan, and would apply to every penny of income. For joint filers, that rate would take effect only on earnings greater than $1 million, the same as in the governor's plan.
The corporate tax rate would be raised to 7.99% as well, slightly higher than Pritzker's proposal to increase the rate from 7% to 7.95%. Businesses also pay a corporate property replacement tax, however, so the top corporate rate would be 10.49% under the Senate plan.
Sponsor Toi Hutchinson, an Olympia Fields Democrat, said lowering the threshold for the top rate of single filers was an attempt to address a so-called marriage penalty without drastically decreasing anticipated revenues.
She said a Center for Government Forecasting and Accountability analysis shows the tax would bring in an added $3.57 billion in revenue from individual taxpayers and $350 million from raising the corporate tax rate. These estimates were based on 2016 figures, she said.
State Sen. Jason Barickman, a Bloomington Republican, questioned whether the figures were reliable, and he suggested using a three-year trend from 2014 to 2016 to project 2021's revenue.
Barickman said the uncertain estimates, along with lowering the top bracket from Prtizker's initial proposal, were indicators that nothing would prevent the General Assembly from voting to raise taxes on lower-income earners in the future.
Hutchinson responded that the General Assembly already has the authority to raise taxes on everyone, and the flat tax would have to be increased from its current 4.95% rate to at least 6% on all Illinoisans to generate the revenue projected from the graduated tax.
While the Senate plan is not final, Pritzker's office released a statement in support of the committee process Tuesday.
"From day one, Governor Pritzker has made clear that he prioritizes negotiations with the General Assembly on the fair income tax," the statement said. "Today represents another important step in the negotiations, and we look forward to continuing those conversations with stakeholders in the House as well. Governor Pritzker's focus on making our system more fair means that 97% of Illinois taxpayers will pay the same or less in income taxes, while only those making more than $250,000 will pay more."
Outside the top brackets, the marginal tax rates for joint filers in the Senate plan are 4.75% from $0 to $10,000, 4.9% from $10,001 to $100,000, 4.95% from $100,001 to $250,000, 7.75% from $250,001 to $500,000, and 7.85% from $500,001 to $1 million.
For single filers, tax rates are the same up to $250,000, while the 7.75% rate would apply from $250,001 to $350,000 and the 7.85% rate would apply from $350,001 to $750,000.
Republicans also questioned a provision in the bill requiring Illinoisans to file their state income taxes with the same joint or single status they list on their federal forms. For couples living in different states, committee Democrats said, only money earned in Illinois could be taxed here, the same as current law.
The Senate plan includes an additional $100 million for the Local Government Distributive Fund, which helps pay for the administration and infrastructure costs of local governments. This fund faced several cuts in recent years.
The package also includes a $100 tax credit per child, which would not be available once a single filer's income exceeded $80,000 and a joint income exceeded $100,000.
Amendment 1 to Senate Bill 690, carried by Bunker Hill Democratic Sen. Andy Manar, would offer property tax relief provided the state fully funds K-12 education in its operating budget beginning in 2021. This would require $350 million annually for the new school funding formula and about $300 million for mandated categorical payments, Manar said.
If those needs are met, the property tax rate would be frozen for the coming year and every year in which the state meets the payment requirements.
The bill contains exceptions for levy increases for debt approved through a local referendum and for pension payments.
"The concept here is to put a credible proposal on the table to do what I think we all want to do, which is turn off the spigot of property taxes and make the state budget the predominant source of how we fund public schools in the state," Manar said.