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Saturday tax hike roundup - Madigan drops TABOR plan for now

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* Eric Zorn offers some only partly tongue-in-cheek advice that I’ve been hearing a lot from others lately…

Suggestion for members of the General Assembly:

Today’s headlines bannered the proposed 75 percent increase in the state income tax (to 5.25 percent from 3 percent), a proposal you didn’t vote on before adjourning for the weekend.

If you should decide to scale this back to a 33 percent increase (to 4 percent from 3 percent) , as Gov. Pat Quinn was proposing during last year’s campaign, one way of selling it to the public would be as a 24 percent tax cut (5.25 percent down to 4 percent) compared to last week’s proposal.

The problem with that is it wouldn’t do nearly enough to get the state out of hock, which is why Quinn’s budget team claimed last fall that a tax hike would have to be much higher than the governor was saying. Cut the tax increase to a single percentage point and Democrats would have to find billions more cuts. If, however, they left the currently proposed 1.5-point tax hike for the deficit in place and kept the quarter-point tax hike for borrowing, they could still pull it off and lower the overall increase by half a point. That would be something, at least.

But that would mean killing off part of the increase for schools (eighth of a point increase - although the $1 a pack cigarette tax hike would still give schools $377 million) and human services (eighth of a point) and property tax rebate checks (quarter-point).

More on a possible reduction…

When asked if the ultra-high numbers being thrown about on the tax hike was simply a way to come back lowering the final amount and make the hike more palatable to the public, [GOP state Sen. Matt Murphy] said that was possible.

“Madigan sending his members home Friday lends to that picture, but Quinn and Cullerton very much want this increase,” Murphy said. “In the new session it becomes much more difficult to pass a tax increase, so it’s doubtful that’s the strategy, but it’s not impossible.”

While Madigan reportedly is more hesitant about the tax hike, the other two Democratic leaders are gung-ho, Murphy said.

“Madigan is certainly less interested in this monstrosity than the other two, so it’s an interesting dynamic to watch.”

* Then again…

Many of the Democratic leaders expect some changes to be made to the plan before it comes up for a vote. But they refer to those changes as “tweaks,” and Mautino said he expects the tax component to stay pretty much intact.

“At the end of the day, I think it’s going to be pretty close to what you see,” Mautino said.

* However, could gaming expansion fill some of the holes created by a scaled-back tax hike? Maybe…

Although [Republican state Rep. Jil Tracy] is not a fan of gambling, she would support a gaming expansion because it would generate money for the state without hitting all Illinoisans. She considers gambling expansion as more acceptable than the income tax hike.

* The Tribune has a story about a couple of bond speculators demanding even more from Illinois, but it does include this…

“The municipal bond market is unsettled, and the market for Illinois municipal bonds is fragile, so concrete steps, even if they aren’t 100 percent of what is needed for a balanced budget long term, will be looked at as favorable from where things are at now,” said John Miller, chief investment officer at Nuveen Asset Management, which has some Illinois bonds in its investment portfolios.

And Moody’s Investors Service has stated that legislation providing recurring revenues is among the changes that could lead to an upgrade in the state’s bond rating.

* WBEZ also talked to one of the more sympathetic sharks…

But bond experts say a move to raise the income tax could help stave off another downgrade. Brian Battle works for the Chicago bond-trading company Performance Trust Capital Partners. He says a tax hike gives bondholders more hope that Illinois won’t default on its debt.

“This is the first positive news we’ve had since last summer about Illinois being proactive about doing something to plug this budget gap that we have and now we need to see what they’re going to do about it long-term,” Battle says.

Battle says bond investors want reassurance that the state can pay its debts many years from now. So he says the market won’t really get interested in Illinois bonds until state leaders start cutting the budget in addition to raising revenue.

* The Sun-Times editorial board supports the personal tax hike, but doesn’t want the borrowing component…

Drop the massive borrowing. Built into the package is a plan to borrow a whopping $12.5 billion to pay off a $3.7 billion pension bill and to make $8 billion in outstanding payments to hospitals, schools and social service agencies. We support borrowing for the pension payment only. If Illinois skips its payment, it will lose out on millions in investment income and the pension systems could be forced to sell off precious assets.

But borrowing beyond that, to pay for the basic operations of government, goes too far. Delayed payments to schools and hospitals are outrageous, and we sympathize with the urge to make them whole. But borrowing to pay them back — pretending, really, that Illinois can continue to support spending at current levels indefinitely — is worse.

* Dropping that quarter-point tax hike for borrowing would mean the state would struggle for years - maybe decades - with overdue bills. From Illinois Issues…

If lawmakers fail to act on budget solutions, the state could face $7 billion to $10 billion in unpaid bills by the end of the current fiscal year, according to a quarterly fiscal report issued today by Comptroller Dan Hynes.

At the midpoint of this fiscal year, the backlog of unpaid bills is higher than it was at this time last year.

* And Mark Brown has supported a tax hike for a long time, but he’s frustrated by the secrecy of this whole thing and of the governor’s refusal to comment or explain…

I called the governor’s office Friday practically begging to find someone who could help me make the case for them. All I got was a canned statement insulting our intelligence. I keep thinking Quinn will understand the problem of putting the cart before the horse, but I guess I’m giving him too much credit.

Amen to that. It’s been almost impossible to get information from the governor’s office this past week. They’ve locked everything down on the tax hike, so they get what they deserve.

* Meanwhile, the stimulus effect here of the federal payroll tax cut would be canceled out by the state’s personal tax hike…

As part of that deal, Social Security payroll taxes were trimmed back for 2011 in an attempt to plump up take-home pay for workers and get them to spend more.

But any benefit from that stimulus could be eaten away in Illinois by a larger bite of state taxes. On the other hand, the federal benefit may initially mask the pain from any state hike.

“It could work itself out where it will be more or less a wash for many taxpayers,” said Joe Rebman, Illinois tax analyst for CCH, a tax research firm based in north suburban Riverwoods.

* Business groups are lining up against the corporate tax hike…

“It’s a windfall for moving van companies,” said Greg Baise, president of the Illinois Manufacturers Association. […]

“I was shocked,” said Doug Whitley, president of the Illinois Chamber of Commerce. “It’s counterproductive to what they’ve been saying since the election that creating jobs is a priority. It sends up another red flag that Illinois has an anti-business approach, which is exactly what we’re trying to get away from.” […]

With dozens of locations and 23,000 employees in Illinois, Caterpillar Inc. doesn’t see a 75 percent corporate income tax increase as the medicine the state needs, noting that when its business plunged in late 2008, the Peoria-based company restructured.

* And so is the Sun-Times…

Don’t strangle Illinois businesses. The proposed package would raise the corporate income tax rate from 4.8 percent to 8.4 percent. After another universal business tax is factored in, this change would give Illinois one of the highest corporate tax rates in the country. We think this is a mistake, potentially jeopardizing the slow economic recovery under way here. A smaller, scaled-back corporate tax increase is about all Illinois corporations can take.

The Tribune, of course, is against the whole kit and kaboodle.

* In other news, House Speaker Michael Madigan has put off his constitutional amendment to cap state spending…

A spokesman for Madigan, D-Chicago, said late last week not enough time is left in the current legislative session to get the amendment through, but Madigan plans to introduce it again in the new General Assembly, which starts work on Wednesday.

“He believes it’s an important idea, and spending discipline is an important ingredient in any recipe to fix the state’s budget,” spokesman Steve Brown said.

The unions and other groups worked that hard in the House and the Senate. Madigan had no choice.

* Roundup…

* How Illinois would compare with other states

* Amazon to fight proposed tax on online sales

* The Bad Math of the ‘Amazon Tax’

* VIDEO: IEA Call to Action - January 7, 2011

* Cigarette tax has smokers thinking twice - As Chicago already 2nd priciest city to puff in, dollar jump may drive some to kick the habit

* Quinn tax hike in trouble

* House lawmakers leave tax hike hanging

* Schools look to tax plan for help

* SIU president, child advocate laud tax proposal

* No state income tax forms to be mailed this year

* Medicaid reforms sent to Quinn

* Bill would limit length of state-union contracts

* Patients have a right to know, Illinois House says - Bill to make detailed doctors’ histories available moves to Senate

posted by Rich Miller
Saturday, Jan 8, 11 @ 1:14 pm

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