Tax hikes, minimum wage increase start Wednesday

Tax hikes on gas and marijuana start Wednesday, along with a minimum-wage increase throughout Illinois and pay raises for many state workers.

The motor fuel tax rate is increasing from 38 cents per gallon to 38.7 cents per gallon for gasoline, while diesel and propane prices increase from 45.5 cents per gallon to 46.2 cents per gallon. After years of stagnation, the legislature voted last year to double the motor fuel tax and then tie annual increases to the rate of inflation.

The additional revenue is being used for road improvements throughout the state.

"With gas prices actually lower, even with the tax increase, drivers are still going to be paying less for gas than they did a year ago," said Ralph Martire, executive director of the bipartisan Center for Tax and Budget Accountability. "And so many people are working from home now, these prices aren't going to be felt like they normally might."

The lack of travel over the past few months because of the COVID-19 pandemic is going to put a dent in revenue expectations for the state and local governments that rely on motor fuel taxes for capital improvement projects, experts believe.

"What we're experiencing are gas receipts that are way down," said Laurence Msall, president of the Civic Federation, a government finance watchdog group. "The previous reliance that it would keep up with the capital needs bears re-examination given the present circumstances."

Minimum wage workers throughout the state will see their paychecks increase at least 75 cents an hour beginning Wednesday.

The state's new minimum wage will increase from $9.25 an hour to $10 an hour. In Cook County, the minimum wage increases from $12 an hour to $13 an hour.

"We have pressed the state and the county to take some recognition of the fact we're coming out of a recession and take a pause on this," said Todd Maisch, president and CEO of the Illinois Chamber of Commerce. "The governor and the legislature need to recognize that small businesses have been battered during this pandemic and financial crisis and they need to step up to help them."

This is another step on the state's path to a $15 minimum wage by 2025. Cook County has tied annual increases of the minimum wage to inflation beyond this year, according to the county's minimum wage ordinance.

"There's no way to fairly evaluate if this change will be helpful or harmful," Martire said. "It might have some negatives in the short term with some job losses that eventually lead to long-term gains in employment as these workers have more buying power. Low-income families will have more to spend and they will spend it, generating more economic activity."

But minimum wage workers aren't the only ones who will see their paychecks increase.

Hundreds of state union workers are due raises of 2.1% for the coming fiscal year that starts Wednesday, which amounts to more than $125 million total for the year, according to budget estimates.

"Giving out raises to state workers is unfair at a time when other residents are getting laid off or having their paychecks slashed," said Mailee Smith, director of labor policy at the Illinois Policy Institute, a conservative governmental finance analysis organization. "The governor should bring public employee unions to the table and negotiate a delay in these pay increases, if only to prevent future furloughs."

Martire believes postponing the raises would slow the potential for economic growth.

"These are moderate-income families who will spend that and drive economic growth," he said. "The bottom line is the gains we will see from this will be very positive for the economy and significantly greater than anything you would see from tax relief."

Gov. J.B. Pritzker can't unilaterally decide to forgo promised benefits that were collectively bargained, said Jordan Abudayyeh, the governor's press secretary.

"When Gov. Pritzker took office, he prioritized moving past pointless acrimony and instead focused on bargaining in good faith to ensure state workers and taxpayers got a good deal," she said. "The contract provides modest annual raises after workers went without one since 2014, while also generating $550 million in health care savings."

Elsewhere, recreational marijuana consumers will start paying more for products because local and county taxes on the drug go into effect.

Municipalities can charge as much as 3% on recreational sales. Counties can tack on an additional 3% tax on marijuana sales made in incorporated areas and as much as 3.75% on sales made in unincorporated areas.

The local taxes are in addition to the state's marijuana taxes that range from 10% to 25% based on the potency of the product.

Marijuana sales have been strong during this recession and pandemic in Illinois. Sales for dispensaries grew and tax revenue along with it.

Martire doesn't believe the new tax levels will dissuade consumers.

"You really have to have an onerous tax level to drive people away from purchasing legally and taking on the risk of criminal prosecution by buying illegally," he said.