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*** UPDATED x1 - Cullerton “clarifies” even more *** Problems with the trial balloon

Tuesday, Mar 8, 2011

*** UPDATE *** Senate President Cullerton has released a new statement on his proposal

As part of our efforts to modernize and reform Illinois’ tax code, we should broaden our tax base in order to lower tax rates and create a fair system for all.

Yesterday, as part of a speech to the City Club of Chicago, I gave a state revenue presentation. One of many points made is that our income tax is unique because unlike other states we have a very large exemption for retirement income. Of the states with income taxes, Illinois is one of two that doesn’t tax any retirement income. Putting aside politics for a moment, I noted that if this exemption didn’t exist, it would mean an additional $1.6 billion in the state treasury.

I’m fully aware of the difficult politics of taxation. The only context in which such a policy could become reality would be if there was widespread bipartisan support, key protections for low-income retirees, and that the additional revenue would be used to lower overall taxes.

There is no formal proposal to advance.

In other words, fuhgetaboutit.

[ *** End Of Update *** ]

* I kinda get the feeling that Senate President John Cullerton didn’t expect such a huge media reaction to his trial balloon yesterday about taxing retirement income. Look at how he zig-zagged after he made his original comments

Senate President John Cullerton (D-Chicago) said he would exclude Social Security income and avoid targeting those lower-income seniors who “don’t have much of a retirement income.”

Cullerton’s trial balloon would affect retirement income for those under 65. And in a late-afternoon committee hearing in Springfield, Cullerton suggested applying the retirement tax to those seniors making $100,000 or more.

“If the Republicans want to talk about tax reform, which will be revenue neutral, I’m all in. If they want to talk about, perhaps, taxing some of that retirement income — maybe tax retirement income up to age 65 — if we want to expand the tax base and sales taxes [as Mayor-elect Rahm Emanuel has proposed] — we can do that, then lower overall rates. I’m all in favor of that. That would be tax reform,” Cullerton said following a speech to the City Club.

Exclude Social Security, avoid taxing low-income seniors, then maybe tax seniors who earn more than $100K a year. He’s pretty much all over the place.

* The Tribune ran the numbers

In 2008, Illinois taxpayers received $37.3 billion in retirement income, including pensions, retirement annuities and Social Security, according to the nonpartisan Commission on Government Forecasting and Accountability. If taxed at 5 percent, that amount of retirement income would generate $1.9 billion. That figure would drop to $1.5 billion if Social Security income is not taxed, the commission’s calculations showed.

Revenues would drop dramatically if only the highest retirement incomes were taxed. For example, imposing the tax on everything over $50,000 in pension income would generate an additional $276 million. Taxing everything over $100,000 in pension income would raise just $70 million, said Sue Hofer, spokeswoman for the Illinois Department of Revenue. [Emphasis added.]

That ain’t much.

* Republican Sens. Matt Murphy and Kirk Dillard used some of the same logic employed by several commenters yesterday

Murphy and Sen. Kirk Dillard, R-Hinsdale, said they are concerned that additional taxes would force high-income seniors to flee to Florida, which does not have an income tax. They said an exodus of retirees would be costly to Illinois because the state would lose sales tax revenue as people spend money in other states.

* The Fox Nation headline was predictably blunt

* And so was AARP’s response

Bob Gallo, senior state director for AARP Illinois, said the state cannot in good conscience ask seniors to pay more when it is cutting services for the elderly.

* Gov. Pat Quinn was not so blunt. Instead, he rambled

“I think it’s important that we always be open to reviewing the tax code. Matter of fact, I proposed in my budget address that we have a commission in Illinois that’s focused on fairness and economic growth, and looking at our tax code, that promotes fairness to everyday taxpayers and also economic growth for all of us, so I think everything should be looked at,” Quinn told reporters. “How we go about it is obviously something we have to work together on.”

Listen…

* Zorn used an NCSL paper to show how it works in other states

Among the 41 states with a broad-based income tax, 36 offer exclusions for some or all specifically identified state or federal pension income or both,, a retirement income exclusion, or a tax credit targeted at the elderly…. The five states that offer none of these are California, Nebraska, North Dakota, Rhode Island and Vermont. …

The states that offer an exclusion for all state and local government pension income are Alabama, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Mississippi, New York and Pennsylvania….

The District of Columbia and 27 states with income taxes provide a full exclusion for Social Security benefits (the list includes Illinois) …. The remaining 15 states with broad-based income taxes tax Social Security to some extent.

Ten states exclude all federal, state and local pension income from taxation – Alabama, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Mississippi, New York and Pennsylvania….

These 10 states differ on the taxation of retirement income from private-sector sources. … Illinois and Mississippi exclude income from qualified retirement plans.

…Adding… Oof.

* Also, for the second time in a week, Gov. Quinn said he hadn’t yet read the Senate Democratic analysis of pension law which claims that it’s unconstitutional to reduce pension benefits for current workers. He did seem to say that he’s open to some changes, as long as they’re legal. Listen…

* Related…

* Quinn Tackles Schools, Seniors, Death Penalty and Ankle Biters

* Cuts are a civil rights issue

* Local providers urge lawmakers to OK Quinn borrowing plan

* Erickson: Illinois not out of the woods yet

* Brady worried state not yet ready to escape recession: “They increased the income tax and that takes away about one week’s pay from everyone in addition to what they were already taking,” he said. “Much of that money is going to bond and interest payments to investors who aren’t in Illinois.”

* Illinois preparing to comply with national health care reform

- Posted by Rich Miller        

41 Comments
  1. - Retired Non-Union Guy - Tuesday, Mar 8, 11 @ 7:45 am:

    The fact there is only small amounts of tax money to be gained in the $50K+ and especially $100K+ ranges just proves the point most seniors don’t have big incomes … they may have assets like paid for houses but they don’t have a lot of cash coming in. Seems like taxing such would be political suicide for the small amount to be gained.

    Guess that means this trial balloon is gone and now they can move on to where there might be some real money: sales tax on services.


  2. - cassandra - Tuesday, Mar 8, 11 @ 8:00 am:

    Yes, it’s spring and hence trial balloon time. Looks like Cullerton’s tax senior income one just popped. Sales tax on services is another pretty one but somehow it can never seem to stay up there. And forget about even sending up anything that might conceivably annoy AFSCME, our governor Pat’s consigliere. Don’t even put it in the air.

    So….how’s that mega-loan looking. Could we push it up to $10 billion, $11 billion? Interest rates, schminerest rates.


  3. - 42nd Ward - Tuesday, Mar 8, 11 @ 8:10 am:

    Captain Smith of the Titanic knew the ship would sink, that there were not enough lifeboats, and that hundreds would die in the freezing ocean. So he just wandered around the ship, doing little.

    Quinn is starting to remind me of that.


  4. - Downstate - Tuesday, Mar 8, 11 @ 8:11 am:

    I’ve reported before that my small downstate community already has four high net worth individuals that moved their residence out of state. In the past week, I’ve learned that two more are following suit. They are departing because of the increased tax rate, the new estate tax and crazy stuff that keeps getting proposed out of Springfield.

    Based on my knowledge of these individuals earnings, our state would need to land a new employer with 500 new jobs, each paying $40,000/year to make up for the loss of these six. This is playing out across the state, and Cullerton’s comments only help to drive that exodus.


  5. - WRMNpolitics - Tuesday, Mar 8, 11 @ 8:24 am:

    This measure is long overdue. The Illinois tax code is one of the few in the country that excludes retirement income from taxation both going into the plan or coming out of the plan as retirement fund contributions to pensions, IRA’s and 401(k) plans are pretax deductions while withdrawals are exempt from tax, ever early withdrawals. The state can easily calculate the median pension income reported in Illinois and use that as a floor level of tax-ability. Next,other loopholes and exclusions in the tax code should be discussed and eliminated (ie: property tax credit against state income taxes).Any revenues generated should be restricted in use to fund pension obligations and payment of vendors.


  6. - steve schnorf - Tuesday, Mar 8, 11 @ 8:40 am:

    Downstate, 6 high net worth individuals paying substantial amounts of taxes, moving out of one small downstate community, huh? Sounds like there are going to be some serious real estate bargains to be had. Any hint where I should be looking?


  7. - Downstate - Tuesday, Mar 8, 11 @ 8:47 am:

    Steve,
    While I realize your question is maybe “tounge-in-cheek”, I’ll offer an answer. You probably wouldn’t find any real estate bargains, as they are keeping their Illinos house and simply buying their permanent residence out of state.
    It’s interesting to note that the Kennedy matriarch, Rose Kennedy, had her legal residence in Florida when she died. So I guess it’s not just a Republican thing to do.


  8. - Jellybean - Tuesday, Mar 8, 11 @ 8:47 am:

    Excuse me Ms Hofer, since when is $70 million just a small amount of money? That is part of the problem in Illinois, some folks choose to forget that small amounts add up. Maybe that $70 million could be used to restore services to poor seniors.


  9. - Truth Seeker - Tuesday, Mar 8, 11 @ 8:54 am:

    I think the Senator was just trying to take a little heat of the public pension debate. If the focus can be shifted even for a few days it may help.


  10. - Anonymous - Tuesday, Mar 8, 11 @ 9:03 am:

    Illinois is still one of the lowest tax states, even if this tax gets passed.

    Did you know Illinois was ranked at the top of Site Selection Magazine as one of the best places to set up shop?

    I’m not concerned with this tax. I think it is a good idea.


  11. - Louis - Tuesday, Mar 8, 11 @ 9:06 am:

    Hey Schnorf…you looking for real estate bargins? Check out Chicago…stuff is starting to get LISTED (not sold, mind you) at 2001-1999 prices.

    The amount of capital that is being destroyed up there would make Springfield blush.


  12. - formerpolitico - Tuesday, Mar 8, 11 @ 9:13 am:

    SO now the liberals want to tax those who worked hard to finance their retirements, while subsidizing those who did not save or plan well. Cullerton wants more of my hard-earned money to play with. I can’t wait to retire so I can leave this state!


  13. - mokenavince - Tuesday, Mar 8, 11 @ 9:25 am:

    Quinn is dazed and still rambling. While Cullerton takes aim at our 401K. 2012 is going to be a year of change, if Republicans can sieze the day, and not shoot themselves in the foot.


  14. - Phineas J. Whoopee - Tuesday, Mar 8, 11 @ 9:27 am:

    I know this is off topic, but what’s with the Suntimes Headline sidebar which says “Chicago Area Prepares for Brutal Cold”. It’s a column from the big storm a month ago but with todays date. It scared me till I read it. C’mon Spring.


  15. - Fed up - Tuesday, Mar 8, 11 @ 9:29 am:

    Maybe cullerton should look into taxing his buddy Todd Strogers unemployment claim. More wasted tax dollars. That being said what cullerton has since stated under 100k exempt and over 65 still pay nothing doesn’t sound to bad but I doubt it really brings in much


  16. - Jasper - Tuesday, Mar 8, 11 @ 9:31 am:

    It will cause more old people to move to Florida? SOLD! Where do I sign up to lobby for this thing?


  17. - Jasper - Tuesday, Mar 8, 11 @ 9:32 am:

    My last comment was an attempt at humor, but in all honesty, I suspect that financially losing some of the elderly would be good for Illinois. Have to think medical expenses etc more than exceed the cost of taxes that they pay.


  18. - east central - Tuesday, Mar 8, 11 @ 10:09 am:

    The net of such a tax might even be negative if it motivates a substantial number of seniors to move to states such as Florida.

    Seniors are big business to medical providers in this state, with much of the cost borne by non-State-government sources such as the federal government (more federal tax dollars from IL going to another state). Banks would lose business and the support of reserves they realize from CDs, etc. Other professionals, such as attorneys, would lose business. There would be some real estate impact. And because children sometimes move to be near parents, there could be some secondary demographic negatives.


  19. - cassandra - Tuesday, Mar 8, 11 @ 10:34 am:

    Well, I don’t know, mid and upper income seniors have a fair amount of disposable income, with the house being paid off, the kids out of college, the pets dead (remember that commercial?) and so on. Do we want to send it elsewhere.

    Illinois already has bad weather. Would taxing pension and defined contribution income at 5 percent (the temporary part is a fairy tale) push a sizeable percentage of Illinois seniors to switch their legal residences elsewhere (including to second homes). Maybe. I suspect that as the population ages, more seniors will become more savvy about this issue, with attendant websites to help you make the calculations. Like it or not, an increasing percentage of the US population is a senior population. This could have big economic consequences including states crafting tax policies to attract more seniors, especially the well off ones.


  20. - Langhorne - Tuesday, Mar 8, 11 @ 10:35 am:

    exemption of senior retirement income from taxation is in the constitution, so it would require a constitutional amendment, with all that entails. if cullertons desire to tax only upper income is considered a progressive, rather than flat rate, the flat rate income tax provision in the constitution would also have to be amended.

    i think rich is right, cullerton tossed this out after his speech, without much consideration. and is now trying to backtrack.

    seniors will remember one thing — dems taxing my retirement. they wont pay attention to revenue neutral, desire for bipartisan support, progressivity, etc.


  21. - Rich Miller - Tuesday, Mar 8, 11 @ 10:36 am:

    ===exemption of senior retirement income from taxation is in the constitution===

    No, it isn’t.


  22. - Langhorne - Tuesday, Mar 8, 11 @ 10:47 am:

    my error, sorry. social security benefits and retirement income are reductions to the calculation of adjusted gross income under state law, not the constitution.


  23. - Phineas J. Whoopee - Tuesday, Mar 8, 11 @ 10:50 am:

    ===but Cullerton suggested that the idea be in the mix as part of an effort to change the state’s outdated tax system.===

    I guess Cullerton is saying, if the state hasn’t gotten it’s hands all over the seniors money-it’s outdated.

    I can imagine the commercials from other states recruiting seniors to their retirement communities when this new and improved tax goes active.

    BTW Jasper, do you know how many people are employed because seniors get sick and die. The vast majority are on Medicare (federal money) with supplemental insurance-so it isn’t state money. Literally thousands and thousands of medical personnel, assisted living and undertakers make good money because people get old.

    Talk about short sighted.


  24. - VanillaMan - Tuesday, Mar 8, 11 @ 10:52 am:

    It was not a very well worded trial balloon. Cullerton could have been more open as to the subject or needed to have been clearer as to how he sees it’s limits. Less or more. He did not do a very good job here. It should have been a trial bubble or a sturdier balloon. Noble but flawed.

    Look how desperate some of the posters were. While I understand the need we have to get us out of this fiscal catastrophe, it was very easy to see the unintended consequences doing more harm than the intended consequences.


  25. - shore - Tuesday, Mar 8, 11 @ 10:59 am:

    Just like the war on north shore schools (the school consolidation plan), the first tax hike, this is not put forth as something in the interest of the public but just that springfield needs more money.

    Another fail.


  26. - Obamarama - Tuesday, Mar 8, 11 @ 11:26 am:

    ===It was not a very well worded trial balloon===

    My thoughts exactly. Isn’t this what Rikeesha is there for?


  27. - wordslinger - Tuesday, Mar 8, 11 @ 11:38 am:

    –Just like the war on north shore schools (the school consolidation plan),–

    Rest easy, Shore. I doubt if the North Shore is even on the radar for school consolidation. So New Trier won’t be merged with Morton or Proviso anytime soon.


  28. - Leroy - Tuesday, Mar 8, 11 @ 11:50 am:

    That’s the bad thing about socialism, shore…eventually you run out of someone else’s money….


  29. - aaronsinger - Tuesday, Mar 8, 11 @ 12:24 pm:

    “Just like the war on north shore schools (the school consolidation plan), the first tax hike, this is not put forth as something in the interest of the public but just that springfield needs more money.

    Another fail. ”

    Yes, because Skokie really needs 5 school districts in a town of 60,000 people.


  30. - Nick Name - Tuesday, Mar 8, 11 @ 12:43 pm:

    “Fairness”, “fairness”, “fairness”. Why does every tax increase have to include the word “fairness”? My Da says, “Life isn’t fair”.


  31. - cermak_rd - Tuesday, Mar 8, 11 @ 1:06 pm:

    I have doubts that that was an authentic Quinn speech. I saw no reference to Lincoln.


  32. - Vitaman - Tuesday, Mar 8, 11 @ 1:13 pm:

    If anyone thinks it is hard to move one’s residence to Florida without moving and getting the tax break just google RV mail forwarding service. You go to the courthouse and swear you intend to domicile in FL and that is it. If you are collecting a pension it is pretty easy to do.


  33. - Sue - Tuesday, Mar 8, 11 @ 1:16 pm:

    with leaders like this it is no wonder we are broke- Madigan, Quinn and cullerton need to stop jerking around and focus on a long term fiscal program which raises revenue from any potential source AND to immediately implement some meaningful cuts on the expeniture side- failing that our slippery slope will become more like a ski jump shute


  34. - Rich Miller - Tuesday, Mar 8, 11 @ 1:31 pm:

    Vitaman, that’s fine until IDoR catches up with you. Then you’ll owe all those back taxes.


  35. - Downstate - Tuesday, Mar 8, 11 @ 1:54 pm:

    Out of state residency - you aren’t required to live in another state for a given period of time. For purposes of avoiding Illinois income tax, you only have to prove (if challenged to) that you did not reside in Illinois for six months of the year. Hence, if you travel for two months out of the year and live in Florida for four months - you can comply. This is much easier for someone that lives near the state border. Reciepts showing gas purchases, etc. are evidence that you were out of the state on those days.


  36. - Rich Miller - Tuesday, Mar 8, 11 @ 1:56 pm:

    Downstate, because taxes are for the little people?


  37. - South - Tuesday, Mar 8, 11 @ 2:56 pm:

    One more reason to retire outside of Illinois.


  38. - Pat Robertson - Tuesday, Mar 8, 11 @ 3:03 pm:

    ==Would taxing pension and defined contribution income at 5 percent (the temporary part is a fairy tale) . . . ==

    There are actually two temporary parts — the exemption of pensions from tax was supposed to be temporary when it was first enacted.

    As for Downstate, don’t forget to save up to pay the penalties and interest that go with the tax for people who do what you’re proposing. Don’t worry about paying a lawyer to defend you when you get caught, because a good one will tell you to pay up and behave yourself in the future.


  39. - Montrose - Tuesday, Mar 8, 11 @ 3:47 pm:

    *Out of state residency - you aren’t required to live in another state for a given period of time. For purposes of avoiding Illinois income tax, you only have to prove (if challenged to) that you did not reside in Illinois for six months of the year. Hence, if you travel for two months out of the year and live in Florida for four months - you can comply. This is much easier for someone that lives near the state border. Reciepts showing gas purchases, etc. are evidence that you were out of the state on those days.*

    Just be sure you never make use of any State of Illinois services or resources that your tax dollars should be paying for. No wandering into a state park, no help from the highway patrol, etc. Oh, and also be sure that no in your family needs human services that your tax dollars would help support.


  40. - Bigtwich - Tuesday, Mar 8, 11 @ 3:53 pm:

    ==this is not put forth as something in the interest of the public but just that springfield needs more money.==

    Actually he was saying from the beginning that this would be revenue neutral, that other taxes would be cut.


  41. - goldenruler - Tuesday, Mar 8, 11 @ 6:00 pm:

    Remember the response of those good Americans in the over $500.000 a year income bracket when it came to shelling out even 1% more in federal taxes. There they go again , taking it from the middle class.


Sorry, comments for this post are now closed.


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