State Budget breakdown: What will it cost you

March 19, 2009 5:40:48 AM PDT
Financial expert Jason Tyler, Senior Vice President for Ariel Investments in Chicago, crunches the numbers.Governor Quinn proposed big tax increases yesterday. Why the need for such an aggressive tax increase so early in his term?

Governor Quinn is looking at an $11.5 billion deficit. Despite the election in less than a year and the fear that he may upset voters, Governor Quinn knows the budget issue has to be addressed.

The federal government is not raising taxes right now. Why are our state taxes going up?

The federal government can operate at a deficit whereas the state cannot ? local governments are required to run under a balanced budget. Given our country's economic environment, Illinois is not the only state proposing higher taxes to deal with increasing deficits. Last month, California passed its largest tax increase ever in order to deal with a $42 billion shortfall.

So, state governments are in trouble - but these increases sound big.

Although it will not affect everyone, the income tax hike seems pretty steep and many Illinois residents will feel a pinch. On the other hand, the proposal aims to spread out other increases over different channels, like the cigarette tax, drivers license renewal fee and sticker fee; so no one gets hit too hard. There are also some creative ways to alleviate some of the pain. For example, the proposal includes a 10 day sales tax "holiday" in August to help parents get kids prepared for school by lifting sales tax on school supplies and clothes.

So who will this affect and how much?

Bigger wage earners are chipping in more. For example, a single person earning $30,000 a year will pay $200 more a year in taxes. That same single person with a salary of $100,000 will pay an extra $1,100 in taxes over 12 months. A family of four, earning $61,000 will not pay any additional taxes and that same family of four; earning $100,000 a year will see an increase of $500 annually in their taxes. Most of the increases will be in the hundreds of dollars, not in the thousands.

It is good to ask tough questions during tax hikes. Here are two important questions: 1. Is the government doing what it can to cut waste from the budget? 2. Are the increases in spending essential for the future?

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