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State considering service industry tax

March 16, 2009 3:18:40 PM PDT
Personal services like hairstyling could soon cost more. State government officials are looking at increasing a variety of taxes and fees to offset the state's $11 billion budget deficit. There is talk in Springfield about raising taxes in the service industry and increasing fees for driver's licenses and license plates.

On Wednesday, the governor will present his budget to the General Assembly, and his proposal to increase the state's income tax is expected to cover only $2 to $3 billion of the $11 billion shortfall.

A state income tax increase by itself would not account for half the budget deficit. And with officials saying there's no way to cut more than $1 billion in spending, they're still looking for ways to raise money.

"Every time they come out and they add more money to our bill, it ends up just hurting the bottom line," said David Perry, salon co-owner.

David Perry says adding a tax to the price of a haircut or any other salon service could threaten the very life of his business. For the past two years, he has co-owned the XEX salon in the Leo Burnett building, and more often these days he has to absorb additional costs.

"Everything costs a dollar. There is a penny here and there. At the end of the year, for a small business owner, it's a lot," said Perry.

But Ralph Martire of the Center for Tax and Budget Accountability says haircuts and blow dries in many other states are taxed, and he offered a long list of other "taxables," including grass cutters, plumbers, mechanics, accountants, babysitters, house cleaners, consultants and many others in the service industry, now the economy's fastest growing sector.

"You cannot leave the fastest growing sector of your economy out of your tax base and expect your revenue system to grow over time," Martire said.

Last week, Governor Pat Quinn confirmed that he will recommend an increase in the state's income tax but will use exemptions to freeze or lower the amounts paid by middle and low-income families.

It is estimated the income tax hike would raise only $2.5 or $3 billion of the $11 billion needed to balance the budget. The state also is considering higher fees for operator's licenses and auto plates.

US Senator Dick Durbin praised Quinn for having the political courage to look for new revenue sources.

"I respect the governor for stepping forward. I don't know what his plan is going to be. I haven't seen it. We are in a terrible situation," said Durbin.

"No matter what your political ideology might be, we do not have enough money to pay our bills," said Ill. Senator Donne Trotter, (D) Chicago.

Illinois Senate budget negotiator Donne Trotter flew to Springfield Monday for emergency meetings on the crisis. He confirmed that taxes on services are on his chambers' table as a possible new revenue stream.

"Are we going to do barber shops? Maybe or maybe not. At least we have to look at it," Trotter said.

Trotter and other legislative leaders from both the senate and house held meetings in Springfield Monday to talk about their versions of a budget. Of course, they'll have to hear the governor's plan on Wednesday before beginning negotiations on what will or will not be included.

Tuesday night the governor will brief members of his administration on the spending plan. He will release it to the public on Wednesday.


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