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* The SALT work-around is a pretty interesting idea. From a press release…
In an effort to put more money in the pockets of Illinois taxpayers and infuse funds into the Illinois economy, State Representative Peter Breen (R-Lombard) has launched the Illinois Tax Reform Plan. The plan, consisting of three taxpayer-friendly bills, was unveiled today at a press briefing in Springfield. Each bill has the potential of lowering taxes on Illinoisans and Illinois businesses.
The cornerstone of Breen’s package is HB 4563, which expands Illinois’ current Invest in Kids Act tax credit model to allow Illinoisans to make fully deductible charitable contributions to 501(c)(3) foundations supporting public school districts, while receiving tax credits to reduce their partially deductible state and local income tax (SALT) payments. The new federal tax law provided a $10,000 limit on deductions for SALT payments, while placing no limit on charitable deductions. “While changes to the federal tax code are providing many opportunities for taxpayers to keep more of their hard-earned money in their own pockets, folks in states where property taxes and income taxes are too high need relief. The Congress left intact the full deduction for charitable contributions, and my Illinois workaround to the new SALT deduction cap relies on the very successful education tax credit model upheld by the Tax Court and IRS, and used by states across the country. This plan has the potential to put over $1 billion every year back into Illinois taxpayers’ wallets. Rather than sending this money to Washington bureaucrats, these dollars can be pumped into the Illinois economy, to help our state grow and prosper.”
Through Breen’s SALT workaround, the current Invest in Kids Act, which allows taxpayers to make donations to private schools in exchange for a tax benefit, would be expanded to include contributions made to K-12 school district foundations. Taxpayers can make annual contributions to school district foundations up to the total amount of their state income taxes and residential property taxes, in exchange for a tax credit equal to 100% of their donation. The bill would ensure little to no cost to the state by amending the school code to ensure that state payments to the K-12 districts benefitted by the program would be reduced by the amount of the total contributions received by the districts.
The second bill in the package, HB 4376, would allow parents who choose to send their children to K-12 private or parochial schools in Illinois to use their Illinois Bright Start program funds (529 Plan) to help offset those costs rather than only using those funds for college.
“Today’s Bright Start Program does not provide the flexibility provided by the recent changes in federal tax law, to allow families the ability to use their own 529 plan account for K-12 educational expenses,” said Breen. “My bill expands the Illinois Bright Start Program’s definition of ‘qualifying expenses’ so that families may enjoy the full tax benefits newly available through the revised federal tax law. Expanding the use of these tax-free funds will help hard-working Illinois families save for their kids’ education.”
HB 4376 also provides for a rollover of 529 plan funds into an Achieving a Better Life Experience (ABLE) account to help individuals living with significant disabilities. Whereas 529 plans may only be used for education, ABLE accounts may also be used for housing, transportation, employment training and support, assistive technology, personal support services and health care expenses. “These types of accounts really help folks living with disabilities to maintain their independence and quality of life,” Breen said. “Individuals with disabilities and their families often rely on public benefits for income, health care, housing and other assistance, and eligibility is largely based on meeting an income threshold. ABLE accounts allow families to create a long-term plan with defined tax benefits for covering the significant costs associated to living with a disability.”
The final bill in Breen’s Illinois Tax Reform Plan is HB 4562, a measure to support the small businesses that will start or grow as a result of the Tax Cuts and Jobs Act. HB 4562 will lift the requirement that individuals who operate a small business where they are the sole employee be in the unemployment insurance system. “This is a common sense issue. Individuals who operate a business where they themselves are the only employee certainly can’t really ‘fire’ themselves in the traditional sense of unemployment insurance, so they shouldn’t be forced to pay for this insurance,” said Breen. “There are thousands of single-employee businesses in Illinois, and while these entrepreneurs are contributing greatly to the Illinois economy, they’re being nickel-and-dimed through laws that force them to pay for services from which they would never benefit.”
Breen is hopeful he will have wide bipartisan support for all three bills and will be pushing for prompt consideration of the legislation in Springfield.
* Daily Herald…
In wake of Des Plaines Elementary District 62 paying more than $127,000 in severance to its former superintendent accused of sexual harassment, a pair of suburban lawmakers are co-sponsoring legislation requiring local governments to provide public notice of similar payouts in the future.
State Rep. Marty Moylan, a Democrat from Des Plaines, filed the bill with Rep. David McSweeney, a Barrington Hills Republican, in response to the payout given former District 62 Superintendent Floyd Williams Jr. in November.
The legislation would require any unit of local government, including school districts, to provide public notice within 72 hours of approving a severance agreement with an employee or contractor accused of sexual harassment or discrimination.
Under the bill, the government would have to publish on its website and in a local newspaper the name of the employee, the amount of the payment, and that the person was accused of sexual harassment or discrimination.
* Wall St. Journal editorial…
Democratic politicians in left-leaning states have been brainstorming ideas to avoid serious pension and tax reforms. The creative financial geniuses in Illinois have come up with a doozy: a magic bond that would save the state as much as it borrows.
Democrats in the state House have proposed issuing $107 billion in bonds to backfill the state’s pension funds, which are short $129 billion. Annual state pension payments are projected to increase to $20 billion in 2045 from $8.5 billion—not including interest on $17 billion in debt the state previously issued to pay for pensions.
At the request of state retirees, a University of Illinois math professor performed a crack analysis showing how the state could use interest-rate arbitrage to shave its pension costs. Under the professor’s math, the state could sell 27-year, fixed-rate taxable bonds and invest the proceeds into its pension funds. This would supposedly stabilize the state’s pension payments at $8.5 billion annually, save taxpayers $103 billion over three decades and increase the state retirement system’s funding level to 90% from 40%. Can the mathemagician make House Speaker Michael Madigan disappear too? […]
Republican Gov. Bruce Rauner won’t fall for this ruse. But if a Democrat defeats him this fall, unions may pull this magic bond out of their bag of political tricks.
So far, Martwick has no co-sponsors, so I’m not sure that “Democrats in the state House have proposed” anything of this nature. Not yet, anyway.
posted by Rich Miller
Tuesday, Feb 6, 18 @ 11:45 am
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Non-Starter- any contribution which affords the tax payer a personal benefit(reduction in your own tax liability) is per se non deductible. All these so call smart folks are encouraging tax evasion. I would like the IRS to announce that such govt officials will be prosecuted for assisting taxpayers to evade their taxes
Comment by Sue Tuesday, Feb 6, 18 @ 11:51 am
As far as the tax bond - why would we want to trade a “soft” IOU to the pension beneficiaries into a “hard “ IOU to bond holders. If the State agreed to this stupid suggestion just think what might happen if in any given year the State needed to put less money into the pensions. It would not have the option. And by the way- why would we want to time this market
Comment by Sue Tuesday, Feb 6, 18 @ 11:55 am
–So far, Martwick has no co-sponsors, so I’m not sure that “Democrats in the state House have proposed” anything of this nature. –
The WSJ edit board is the model for the tronc edit board: willfully uninformed, regularly hysterical and more than a little bit dishonest.
It’s embarrassing for anyone at WSJ to think that a $107B Illinois POB is remotely realistic either politically or in the marketplace.
Thanks to those tax cuts last December, the federales plan to hit the market to borrow $1 trillion this year, nearly double the amount of 2017 (surprise, tax cuts increase the deficit).
That’s a lot of paper flooding the market. A $107B Illinois POB was a pipe dream before then.
https://www.washingtonpost.com/news/wonk/wp/2018/02/03/the-u-s-government-is-set-to-borrow-nearly-1-trillion-this-year/?utm_term=.67c2ff53f1ee
Comment by wordslinger Tuesday, Feb 6, 18 @ 12:01 pm
“The bill would ensure little to no cost to the state by amending the school code to ensure that state payments to the K-12 districts benefitted by the program would be reduced by the amount of the total contributions received by the districts.”
So this essentially is of no benefit to school districts.
Comment by Dance Band on the Titanic Tuesday, Feb 6, 18 @ 12:27 pm
What Sue said on the bills — though I wouldn’t prosecute legislators for tossing out ideas that won’t
pass anyway.
Comment by walker Tuesday, Feb 6, 18 @ 12:38 pm
re: the Moylan - McSweeney proposed bill.
My small ( less than 400 students ) downstate consolidated HS district had a Superintendent involved in a controversy that divided community - and it involved written comments about his fantasies ( recollections ) and the girls volleyball team.
Long story made short - the Board allowed him to “resign” on his 56th Birthday ( when he was eligible to take his state retirement ), paid him a $64,000 retirement bonus, paid him $54,000 for him not agreeing to sue the Board for age discrimination, and picked up his health insurance for his family for 6 months.
And this was while needed teaching positions were not being filled and part-time positions were eliminated.
The bill has merits that should be considered.
Comment by illini Tuesday, Feb 6, 18 @ 12:57 pm
Instead of a “work around” maybe we should look at the underlying problem of high taxes.
Comment by Just Me Tuesday, Feb 6, 18 @ 1:00 pm
As I have said to every reporter who has been interested enough to ask, this is not my idea. I am not “pushing” this legislation. I was brought an “idea” by a professor who is the head of the actuarial sciences department at the University of Illinois (translation: far smarter than me and probably every one else in this building). He said he had a model that could possibly save the state $100 Billion over the next 27 years. He has publicly admitted that he’s not a financial expert. He’s told us that if his assumptions are incorrect, he will be happy to run the math with different numbers. In my role as Chairman of Personnel and Pensions, I thought it was my responsibility to bring this idea to the committee so that a full and proper discussion of this idea could be conducted. In public. I did not realize that it was my responsibility to tell the good professor that he had no idea what he was talking about. Illinois is on a collision course with our debt and as a state we have shown an absolute lack of the courage necessary to do anything to manage those costs. Given the condition of our finances, I thought it would be best to bring the professor to the committee and have an open discussion. You know….transparency. I did not think that the proper course of action was to hold closed door meetings and make unilateral decisions. There has been an abundance of opinion offered about this idea, however most of it, like that offered in the WSJ is so misinformed as to be nearly laughable. That’s a shame because you’d like to think the opinion of the WSJ would be something you’d take with great deference. Unfortunately, when their opinion is based on clear misstatements of fact, it is painfully clear that they don’t know what they’re talking about. Thankfully, as I’m not actually trying to push this legislation, there will be ample opportunity for real financial experts to come in and offer thoughtful and factual analysis of this proposal. Perhaps it’s a great idea. Perhaps its a terrible idea. Perhaps part of it can be used in conjunction with other measures and reforms as part of an overall plan. I don’t know because I’m just a regular old citizen legislator. That’s why I’m holding the hearings. There is one thing I do know. We can no longer sit on our hands and do nothing about this growing obligation. I’m open to suggestions.
Comment by Rob Martwick Tuesday, Feb 6, 18 @ 1:27 pm
Sue is correct. Many years ago, parish contributors would write their tuition checks to the church and deduct fro their taxes as a church donation. The IRS stopped that. This is why most religious non profit contribution statements have “intangible religious benefits” somewhere as a disclaimer. The other important aspect to remember is a married couple now has $24k standard deduction. Quite frankly, very few middle class families are going to make it there just by trying to scam the income tax portion of their federal return.
Comment by Anon Tuesday, Feb 6, 18 @ 1:58 pm
Sue 5 states currently use this strategy and IRS has ruled that it is an allowable charitable tax deduction, so there may be some merit to the idea. The states that currently have this charity/property tax swap are Alabama, Kansas, Montana, Oklahoma, and Virginia
Comment by illinifan Tuesday, Feb 6, 18 @ 1:59 pm
Rob Martwick: Good post.
Comment by logic not emotion Tuesday, Feb 6, 18 @ 1:59 pm
I wouldn’t characterize the “IOU” to the pensions systems as soft debt. The Constitution is pretty darn clear that pension benefits must be paid. If our old friend, John Filan, is to be believed, this is not the right time to try an arbitrage scheme, so I’m not convinced that it is the right path. I commend the sponsor for starting the discussion.
Comment by SAP Tuesday, Feb 6, 18 @ 2:15 pm
SAP - articles in paper last week. Pension obligations in both NJ and CN have reached tipping point where even tax increases won’t allow states to honor the obligations. Illinois is obviously in sams boat. At some position by States will have to find an answer other then honoring the full payments. Why take away that option by borrowing in the debt markets
Comment by Sue Tuesday, Feb 6, 18 @ 2:21 pm
–SAP - articles in paper last week. Pension obligations in both NJ and CN have reached tipping point where even tax increases won’t allow states to honor the obligations. Illinois is obviously in sams boat.–
“Obviously.”
What’s your projected date on when the first checks are skipped, Sue?
Comment by wordslinger Tuesday, Feb 6, 18 @ 2:28 pm
===Illinois is on a collision course with our debt and as a state we have shown an absolute lack of the courage necessary to do anything to manage those costs.===
Absolutely spot on. For starters, allowing the state to stumble along at a paltry 3 percent flat rate tax for decades was neglect of the highest order.
Comment by Nick Name Tuesday, Feb 6, 18 @ 3:01 pm
Sue @ 2:21 — Pension obligations in both NJ and CN have reached tipping point where even tax increases won’t allow states to honor the obligations. Illinois is obviously in same boat. At some position by States will have to find an answer other then honoring the full payments. Why take away that option by borrowing in the debt markets —
The courts that have allowed states to change their pensions have held that the retirees did not have a contractual right to the benefits being taken away. In Illinois, the courts have held that the employees do have contractual rights, based on the law as in effect when they were hired. The $100-billion-plus underfunding is owed for past services, and is contractual. If the state can default on these contractual pension obligations, it can also default on its bonds. In Detroit, the bondholders took a bigger hit than the pensions did.
That said, the pension debt is a soft debt because missing a payment to the funds is not a default. Missing a bond payment is. That is a hard debt.
Comment by Whatever Tuesday, Feb 6, 18 @ 3:02 pm
If Sue were correct, then all charitable contributions would be non deductible since the contributor receives value in the form of a tax deduction.
Comment by Tominchicago Tuesday, Feb 6, 18 @ 6:15 pm