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* Greg Hinz…
Just days before Gov. Bruce Rauner unveils a budget that is expected to include few new revenues, one of the state’s leading taxpayer watchdog groups is proposing a sharply different path.
In a report issued [yesterday], Chicago’s Civic Federation proposes not massive spending cuts but a range of revenue hikes, including a partial rollback of the income tax cut that took effect on Jan. 1; expanding the sales tax base to include services; temporarily eliminating the sales tax exemption for food and nonprescription drugs; and taxing some retirement income.
The group also wants to slow spending growth to 2 percent from the recent 2.7 percent annual level but warns that much deeper cuts than that may be counterproductive. […]
[Civic Federation President Laurence Msall] said the federation looked for a way to balance the books and pay the state’s bills without making the roughly 20 percent across-the-board cuts in discretionary spending that would be needed. “We were not able to do it,” Msall said.
The plan likewise calls for austerity, and holding state spending. But it’s clear that cuts alone should not be the only response to the state’s deficit. According to the report, in order balance the budget through reductions alone, Illinois would need to slim spending by 25 percent… something that would “come at the cost of eliminating entire areas of State services or completely restructuring how Illinois government functions.”
* From the report…
1. Fix Fiscal Cliff in FY2015: Rather than sharply dropping income tax rates by 25% in one year, the State should retroactively increase the income tax rate to 4.25% for individuals and 6.0% for corporations as of January 1, 2015. The State could then provide additional tax relief by rolling back the rates on January 1, 2018 to 4.0% for individuals and 5.6% for corporations.
2. Control State Spending: The State should restrict discretionary spending growth from the 2.7% level shown in its three-year projections to 2.0%, closer to the rate of inflation. This could reduce total State spending by $1.3 billion over five years.
3. Broaden the Income Tax Base to Include Some Retirement Income: Out of the 41 states that impose an income tax, Illinois is one of only three that exempt all pension income. To create greater equity among taxpayers, the State’s income tax base should include non-Social Security retirement income from individuals with a total income of more than $50,000.
4. Expand Sales Tax Base to Include Services: Illinois should expand its sales tax base to include a list of 32 service taxes proposed by Governor Rauner. Due to the complexity of sourcing rules and collections for new businesses that are not currently required to collect sales taxes, it is estimated this expansion could take up to two fiscal years to fully implement.
5. Temporarily Eliminate Sales Tax Exemption for Food and Non-Prescription Drugs: To provide much-needed immediate revenue, the State should temporarily eliminate the tax exemption for food and non-prescription drugs. The State should apply the full 6.25% sales tax rate to food and over-the-counter drug purchases through FY2019 and then reinstate the exemption in FY2020 after the service tax expansion is fully implemented and the State’s backlog of unpaid bills is eliminated.
6. Expand the Earned Income Tax Credit to Provide Assistance to Low Income Residents: To help soften the impact of the State’s fiscal crisis on low income residents, the Civic Federation proposes an increase in the State’s Earned Income Tax Credit from 10% of the federal credit to 15% of the federal credit by FY2018.
Thoughts?
posted by Rich Miller
Friday, Feb 13, 15 @ 11:30 am
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Why exempt social security but hit pension collectors who are non-eligible for social security?
Comment by Gabe Friday, Feb 13, 15 @ 11:38 am
They only got one wrong. #5 is a nonstarter. Otherwise, this is a pretty good list of fiscal policies that would be a big help digging us out of the mess we’re in.
Comment by 47th Ward Friday, Feb 13, 15 @ 11:38 am
and tax millionaires like I voted to in november
Comment by foster brooks Friday, Feb 13, 15 @ 11:40 am
This group, dominated by conservative business leaders, can both forecast and do arithmetic.
They have earned credibility across the political spectrum, by reporting real numbers, and not ideologically-driven myths.
Comment by walker Friday, Feb 13, 15 @ 11:46 am
First-glance thoughts: This is a fairly well-balanced approach, and merits close attention. I’m not a big fan of the disproportional hurt that #4 and #5 would put on less-well-to-do families. But I applaud the Civic Fed for also recommending an EITC increase, to help offset some of that hurt.
Comment by Linus Friday, Feb 13, 15 @ 11:47 am
#5 is the hard sell. I have to wonder if a better option would be to reduce spending increase an additional .5% to 1.5% instead. Once the service tax is operational gradually increase back to 2%.
Comment by Mason born Friday, Feb 13, 15 @ 11:48 am
Shared sacrifice and tax simplicity across the board. Tax all income without exception. Tax all sales and services.
Make it simple.
Comment by Cassiopeia Friday, Feb 13, 15 @ 11:48 am
Without studying the proposal in detail I’m not endorsing it, but it certainly appears to present a more rational approach than what we’ve heard thus far from Rauner.
Next Wednesday will be his day to present a plan in keeping with the realities embraced by the Civic Federation.
Comment by Norseman Friday, Feb 13, 15 @ 11:51 am
Gabe: It is pretty tough to make $50,000 per year on social security
Comment by SAP Friday, Feb 13, 15 @ 11:52 am
Interesting that when most voters approved a tax on millionaires those voters were chastised …… people who work hard to earn more shouldn’t be punished. That would be punishing industrious types. When we talk about people who’ve pushed and worked hard to qualify for pensions that do more than barely exempt them from food stamps………well, that’s a different story. Someone making a 60k pension should be punished ( as millionaires say) by being taxed………but those making multiples more than 60k should never be touched. The greed and irony is suffocating.
Comment by AnonymousOne Friday, Feb 13, 15 @ 12:00 pm
1) Agree. Income tax rates need to be increased, and this is relatively easy to implement quickly (non-politically).
2) Agree. We need to cut back on spending until we are out of the hole.
3) Partially agree. I support eliminating the retirement income exemption. I would include social security and raise the dollar limit. (By the way, my retired father has long said it makes no sense that he doesn’t pay any Illinois income tax, so not all retired individuals will object.)
4)I agree that the sales tax base should be expanded to include services. I do not, however, like narrowing it to a limited list of services. I would prefer that it cover most services at a reduced rate. In conjunction, I would like to see us overhaul the entire sales tax system and join the Streamlined Sale Tax Agreement. That makes it easier for businesses because the rules are somewhat standardized. Both these changes will be difficult to implement, though.
5) I agree that we should eliminate the food, drug, and medical appliance exemption, but I would make it permanent in conjunction with lowering the standard tax rate.
6) Instead of adjusting the earned income credit, I would implement a refundable credit available to all below a certain income level to offset the increases in sales and income taxes. The problem with using only the EIC to offset the increases is that it doesn’t provide any benefits for low income seniors and disabled individuals who aren’t working but still will be affected by the tax increases.
Comment by Pelonski Friday, Feb 13, 15 @ 12:11 pm
I would agree to everything except 5 if they would agree to support a constitutional amendment for a graduated income tax for a longer range solution.
Comment by Bigtwich Friday, Feb 13, 15 @ 12:22 pm
Yes, tax all services across the board; don’t try to pick-and-choose as that does nothing but delay progress. Eliminate the sales tax exemption on food…. yikes. That is a rough one. Taxing folks for services (many of which involve discretionary spending) is one thing. Taxing folks to eat/survive is pretty low. How about increasing taxes on cigarettes, alcohol, lottery tickets, and gambling winnings instead?
Comment by Mattman Friday, Feb 13, 15 @ 12:24 pm
A few states have no income tax.
Most states do not tax SS at all; a few partially tax SS.
16 states tax all retirement income (retirement income does not include SS). 22 partially tax retirement income.
What is really interesting is a couple of states exclude retirement income except for dividends and interest … which could be considered kind of a “wealth” tax. Illinois does tax any dividends and interest included on the federal 1040.
The approach on retirement income seems reasonable. With that $50K “exemption”, It’s probably not going to even hit the average retiree.
Comment by RNUG Friday, Feb 13, 15 @ 12:26 pm
====5. Temporarily Eliminate Sales Tax Exemption for Food and Non-Prescription Drugs:====
The General Assembly doesn’t understand the word “temporary”. If this is approved, it will not be temporary.. Count on it.
Comment by Union Man Friday, Feb 13, 15 @ 12:27 pm
More taxes increases mean more people leaving the state, and less people to pay the new taxes. When will the people proposing these tax increases, tell the truth! This is what has been going on in this state for the last two governors terms. Where has it taken us to, more and more debt!
Comment by Anonymous Friday, Feb 13, 15 @ 12:32 pm
===The General Assembly doesn’t understand the word “temporary”.===
Hmm. Are you aware of what happened on January 1st?
Comment by Rich Miller Friday, Feb 13, 15 @ 12:35 pm
Forget No. 5.
As for sales taxes on services — I can’t figure how you can propose such a tax, which adds a premium to all components that determine pricing, while opposing a bump in just one component, the minimum wage, that would actually give more spending power to the working poor.
Comment by Wordslinger Friday, Feb 13, 15 @ 12:47 pm
My first-glance thoughts about the Chicago Civic Federation plan are:
First, item #5 is very regressive. For me it is a nonstarter as it will hurt the poorest people in the state the most.
Second, the plan relies totally on increasing taxes. Point #2 states “This could reduce total State spending by …”. In fact there is no reduced spending. What is proposed is reduced increases in spending (in other words, a decrease in the increase rather than an actual decrease). I feel that any plan should include some actual decrease in current spending.
Comment by Anonymous Friday, Feb 13, 15 @ 12:54 pm
Taxing millionaires was overlooked.
Comment by NewWestSuburbanGop'er Friday, Feb 13, 15 @ 12:54 pm
==taxing millionaires was overlooked==
Darn, they thought you’d be too dense to notice. If you keep the focus and attention on those 5 recommendations, everyone will be picking those apart so heatedly, they won’t even notice. But you did.
Comment by AnonymousOne Friday, Feb 13, 15 @ 12:57 pm
==More taxes increases mean more people leaving the state, and less people to pay the new taxes.==
Look at neighboring states, we now have the lowest income tax rate (except for Indiana) AND we have that silly flat rate. Even before the roll back, our income tax rate was lower than most of our neighbors top tax bracket. Where was/is all of the in-migration from those states?
People are more likely leaving because of the messed up fiscal situation and the uncertainty that accompanies it. If we can stabilize our budget and remove the uncertainty, that will do more for the confidence of residents and potential business starters than anything else.
It is interesting that the perception of “high taxes” seems to drive the conversation when the reality is what we need to address.
Comment by Pot calling kettle Friday, Feb 13, 15 @ 12:57 pm
Here we go again… Targeting retirees and others in a mostly regressive manner to “share” the burden for fixing Illinois’ revenue shortfalls.
Comment by forwhatitsworth Friday, Feb 13, 15 @ 12:59 pm
At this point, not taxing people making $250,000 or more at a higher rate is such a losing issue for the GOP that it MUST be abandoned. The national GOP leaders figured that out, and it was something that could not be used against the Republican Congressional and Senatorial officials and candidates during the 2014. Sure, there are still pockets of resistance, but it makes my party look a bit silly.
Tax codes are already complex. Adding in provisions for small business owners should be easy. Creating a “Joe the Plumber” exemption should make both sides happy while creating needed revenue and smoothing an issue that should be a no-brainer.
I apologize for the Joe the Plumber reference. It was the first thing that popped into my head.
Comment by Team Sleep Friday, Feb 13, 15 @ 1:03 pm
Please correct me if I am wrong but none of the 6 items require a constitutional amendment.
I think it’s safe to say that any plan drawn up needs to be implemented fairly quickly. Getting an amendment to the State constitution seems to be the opposite of quick.
Comment by Mason born Friday, Feb 13, 15 @ 1:04 pm
I don’t know what the threshold should be for taxing retirement income but I wouldn’t have a problem with it if the threshold was high enough. I’m not sure why we should exempt somebody who makes six figures in retirement income from state taxes.
Comment by Demoralized Friday, Feb 13, 15 @ 1:06 pm
It all sounds reasonable given the current fiscal climate. However I would also like to see a graduated tax implemented if voters agree
Comment by Former Merit Comp Slave Friday, Feb 13, 15 @ 1:18 pm
I’m not sure why we’re not asking people to make upwards of $250,000 to “share” more of the burden.
Comment by AnonymousOne Friday, Feb 13, 15 @ 1:18 pm
(5) Repeal Illinois Administration Code 130.305 exempting farm machinery (personal machinery that is moveable) from the State of Illinois sales tax.
Comment by Griz Friday, Feb 13, 15 @ 1:19 pm
It’s good to see that the Civic Fed does not agree with the GOP mantra that “this state has a spending problem, not a revenue problem.”
I agree with their proposal, although I don’t understand why Social Security should be exempt, since the taxation would only apply to total incomes exceeding $50,000. If retirement income is to become taxable, except for persons of modest income, it ought to apply across the board. Why should some retirees get a break denied to others of the same income??
Comment by anon Friday, Feb 13, 15 @ 1:20 pm
Great ideas.
On a side note, not a lot of elected folks on the Federation’s board.
Hmmm. Wonder why.
Comment by Michelle Flaherty Friday, Feb 13, 15 @ 1:21 pm
The Civic Federation ignored that of those who cast ballots last election, 65% voted for a 3% tax increase on incomes over $1 million. I take it that the Civic Federation members were from the 35% who voted against the idea.
Comment by Joe M Friday, Feb 13, 15 @ 1:22 pm
I would think that retirement income is retirement income, whatever the source. If it exceeds a certain amount, according to this proposal, it’s taxable in the state. It would appear to be discriminatory to certain classifications of retirees to cherry pick who pays and who gets off free.
Comment by AnonymousOne Friday, Feb 13, 15 @ 1:24 pm
It’s time for retirees to share in the burden of fixing this budget mess. These are the same people who reaped the benefits of years of spending without proper structural revenues.
Glad to hear some ideas, for once. Add in a graduated tax and we’re on the right track.
Comment by Mittuns Friday, Feb 13, 15 @ 1:25 pm
Mittuns, it will take a constitutional change to shift to a graduated income tax. Not a helpful recommendation for short-term issues.
Comment by Soccermom Friday, Feb 13, 15 @ 1:36 pm
If your pension was over $50,000 like most retired police and fire, why would you stay?
Comment by What is to be done? Friday, Feb 13, 15 @ 1:37 pm
“and tax millionaires like I voted to in november”
Same here. Conspicuously absent is a millionaire surcharge that the voters overwhelmingly support. This would add a progressive element to a tax structure that really needs it.
Comment by Grandson of Man Friday, Feb 13, 15 @ 1:39 pm
Looks good. #5 is a non-starter (hurts poor folk too much) and #3 would be politically difficult, but doable. Feels like there could be enough middle ground here for enough folks to get on board with these. Bringing spending in line with inflation = good.
Comment by Left Leaner Friday, Feb 13, 15 @ 1:39 pm
#2, #3 and #4 may have some legs, but studies are required for their impact on state business and loss of residents. I know a few snowbirds that would leave permanently if their retirement income was taxed. And I suspect the push back from affected residents and businesses would place these items on the super slow track.
#1 and #6 appear to offer the best near term remedies. But these need to be vigorously sold by the Governor and legislative leaders.
Frankly, I don’t think state government can pull it off. We need some statesmen up front, and we don’t have them.
The likely scenario is continued fiscal deterioration until service disruptions cause a howl from the residents. Then the income tax is increased, again.
Comment by Cook County Commoner Friday, Feb 13, 15 @ 1:41 pm
And Joe M nailed it.
Where are the Democrats in the House and Senate beating the drum over the fact that the millionaire surcharge is very popular with Illinois voters? Possible bargaining chip?
Comment by Left Leaner Friday, Feb 13, 15 @ 1:43 pm
===Look at neighboring states, we now have the lowest income tax rate (except for Indiana) ====
Pot, don’t forget that in Indiana almost all counties and some muni’s have an income tax, so in total its probably higher throughout most of the state.
Add taking into consideration what the first three commentators said this is a pretty good list.
Comment by Been There Friday, Feb 13, 15 @ 1:44 pm
Not taxing retirement income is one of the few things keeping retirees in the state of Illinois. Force retirees to leave by taxing their retirement income, and they will go! Florida and Nevada are nice! See if the state of Illinois will be better off without them, and their paying taxes on property, sales, and other!~
Comment by Anonymous Friday, Feb 13, 15 @ 1:49 pm
So, I get that the millionaire tax that passed overwhelmingly on November’s ballot is non binding, but it was meant to send a message from the public about the direction they’d like the state to go in. So, what? They throw out the poll results they don’t like but keep the ones they do? What exactly are citizens supposed to do to make their representatives know their feelings about matters? Is there a suggestion?
Comment by AnonymousOne Friday, Feb 13, 15 @ 1:57 pm
It’s no surprise that the Civic Fed does not propose a graduated income tax or a millionaire’s tax. It is nevertheless instructive that this group of respected business leaders recognizes that IL cannot cut its way to prosperity, that tax hikes are necessary, including an income tax hike, which is a belated vindication of Pat Quinn.
Comment by anon Friday, Feb 13, 15 @ 2:03 pm
So… what organization is driving all the newbies to CapFax today to talk about a millionaires tax?
Comment by AlabamaShake Friday, Feb 13, 15 @ 2:40 pm
Typical Civic Federation garbage particularly about taxing retirement income that is not SS. And what about matching IRA type constributions. Those are just as much as a part of a pension plan as anything else.
Obviously and blatently anti- public employees since many are not on SS and do not have some of the fancy pension perks that execs get. The Civic Federation and IPI really are making horses rears out of themselves on this issue. they could have at least pretended to be fair and rational.
But it is what I would expect from such groups
Comment by Federalist Friday, Feb 13, 15 @ 2:57 pm
@RNUG
Do you support not taxing SS income as well as other types of pension contributions?
I find it hard to believe that you do not see the real agenda of the Civic Committee in this part of their proposal.
What some people don’t get is that there are many retirees out there who pay plenty of state income and property taxes already?
Don’t thinks so? Then you will not object to my plan of crediting one’s state income owed because of investments, dividends, etc. as well as one’s property taxes against the total amount of state income taxes owed under this proposal. Keep those retirees in the state who are paying taxes already and don’t encourage them to leave.
Comments.
Comment by Federalist Friday, Feb 13, 15 @ 3:06 pm
@Soccermom, of course it requires a constitutional amendment. It’s time for this legislative body to get things done. They have the votes to put it on the ballot. Also, I’d hardly call this a short-term problem, either.
@What is to be done: I don’t even make that amount in my day job, so to get a pension of that amount would be gravy.
Comment by Mittuns Friday, Feb 13, 15 @ 3:30 pm
@Federalist:
What is the relevance of retirees paying other taxes? Everybody pays those other taxes. Your logic there escapes me.
Comment by Demoralized Friday, Feb 13, 15 @ 3:49 pm
==I know a few snowbirds that would leave permanently if their retirement income was taxed==
So they can live someplace where retirement income is taxed at a higher rate. That’ll show ‘em.
Comment by SAP Friday, Feb 13, 15 @ 3:59 pm
Mittuns: We don’t all have the same experience, qualifications, educational level as each other. Give some people credit.
Why begrudge people who’ve bothered to educate themselves at great expense and work to earn a pension of 50K or more but excuse corporate hustlers making massive multiples of that and not want them to “share” in this so-called sacrifice? Seems to make sense to me that if you want to increase revenue, you’d go where the money is. Unless taxes on the unemployed and homeless would provide a windfall.
Comment by AnonymousOne Friday, Feb 13, 15 @ 4:01 pm
===I know a few snowbirds that would leave permanently if their retirement income was taxed===
If their retirement checks originate in Illinois, they can move to Timbuktu and they’ll still have to pay state income tax.
Comment by Rich Miller Friday, Feb 13, 15 @ 4:09 pm
SAP: Florida and Nevada are two states with warm winter temperatures, and no state income tax!
Comment by Anonymous Friday, Feb 13, 15 @ 4:12 pm
@Rich,
Certainly true, But I paid $3800 in state income tax last year even though my retirement was exempt. Plus another $11,600 in personal property taxes last year. One might logically argue that someone else would pay the property taxes after I sell but the state definitely will not get the state income tax sales taxes, fuel taxes etc.
Something that obviously many others have not considered.
Comment by Federalist Friday, Feb 13, 15 @ 4:16 pm
@Demoralized,
I thought it was obvious but I understand that you did not get my point. As I just noted in a previous post I paid over $3800 in state income tax last year as well as $11,600 in property taxes.
(see @Rich above for more info)
The state would get my retirement income but actually loose on just the extra income tax I paid- at the $50,000 exemption level. Again not counting other taxes one pays in Illinois.
Anybody can believe what they want but people who do pay hefty additional taxes in the state will leave. And not only for better climate but also because they are ticked off.
Sincerely, hope this explains what I was getting at.
Comment by Federalist Friday, Feb 13, 15 @ 4:24 pm
Federalist, my point was that if anyone leaves to avoid a tax that they’ll have to pay anyway is being goofy. Or, they just want to live in a warmer climate. Frankly, I’d join them if I could. I love Illinois and I love my job, but I’m getting really tired of winters. lol
Comment by Rich Miller Friday, Feb 13, 15 @ 4:29 pm
@Rich,
Your logic is correct but only if they do not pay a lot of other state taxes- particularly state income tax as well as others. And many warmer states do have lower property taxes, at least for homes, so selling a home in Illinois and also pay lower property taxes for the same quality of home in another state is also not goofy.
In addition, there are retirees who have their legal residence in Illinois spend 6 or more months here and live in the warmer climates the rest of the time. And are still paying the taxes I referred to in Illinois.
Hope that explains it better.
Comment by Federalist Friday, Feb 13, 15 @ 4:42 pm
=== If their retirement checks originate in Illinois, they can move to Timbuktu and they’ll still have to pay state income tax.===
If someone moves out of Illinois, and has no residence there, is he still subject to the IL income tax? I think I misunderstand something here.
Comment by anon Friday, Feb 13, 15 @ 4:55 pm
@anon,
If they have a State of Illinois pension or other income (like a business) that derives from within the borders of Illinois it would be. But nothing else.
At least that is my understanding.
Comment by Federalist Friday, Feb 13, 15 @ 4:59 pm