Gov. Quinn to sign income tax increase bill

January 12, 2011 5:08:35 PM PST
While most Illinoisans were asleep, the state legislature approved a deal to raise personal income taxes -- 66.66 percent.

The final vote in the Illinois Senate came at about 1:20 a.m. Wednesday.

The tax increase passed in the Illinois Senate by the slimmest of margins -- just one vote. Governor Pat Quinn said he will sign the tax increase legislation when it hits his desk because, he says, the state faces a fiscal emergency.

The governor refused to call the measure passed overnight by the General Assembly a "tax increase," referring to it as Senate Bill 2505: "Economic Recovery and Budget Reform." He focused less on the higher tax rates and more on the law's caps on future spending.

"We have to understand that solving our budget and fiscal problems and paying our bills lies on restraint of spending, today and tomorrow," said Gov. Quinn.

Tuesday night and Wednesday morning, the Illinois House and Senate voted to increase the state's personal income tax rate from 3 to 5 percent, or 66.66 percent; and the corporate rate from 4.8 to 7 percent. By 2015, the personal and corporate rates would fall to 3.75 and 5.25 percent respectively. During the years of increased tax rates, state government spending would be capped. The billions of dollars in new revenue will target the state's $15 billion deficit.

Republicans--none of whom voted for the bill--remain skeptical.

"Now the problem is this bill has a spending cap. It is a 2 percent cap, but there are a million ways around that cap," State Senator Christine Radogno, (R) minority leader, said.

But Democrats argued there was no other way to reduce the state's $15 billion deficit.

"We are in desperate need to improve our bond rating. We will do that by raising this money," said State Senator John Cullerton, (D) senate president.

Democrats passed the tax increase with the help of lame duck lawmakers just hours before the 97th General Assembly was sworn in at noon Wednesday. The Illinois Senate passed the tax increase bill by a single vote, 30 to 29, at 1:20 a.m. How state senators voted The critical vote in the House happened hours earlier, where the members approved the bill 60-57, just one vote more than the 59 needed to pass it. How state representatives voted

"I'd like not to pay more taxes. I find it interesting that it happened while we were sleeping," said taxpayer Maurice Vincent.

The governor-- who during the election campaign championed a 1 percentage point increase in the income tax-- said he would sign the bill calling for a two percentage point hike without any reservations.

"We had an emergency, a fiscal emergency. Our state was careening toward bankruptcy and fiscal insolvency," Quinn said.

The Democrats--with substantial majorities in both the House and Senate-- passed the tax increase by a single vote in each chamber. It's now believed party leaders engineered the one-vote victories to protect their most vulnerable members from an angry electorate.

"It's gonna be huge for people out of work," said taxpayer Maude Merriman. "I don't know where the end is with this."

"I think people will leave, businesses will leave," said taxpayer Molly Hansen.

Researchers at the non-profit, non-partisan Illinois Policy Institute say they believe that's true. The agency drafted a study overnight that examines what people and businesses typically do in light of tax hikes like these. The IPI says people and businesses will vote with their feet and leave.

"We're in a competition every day for the best business climate. Job creators, those people that hire our workers who are out of work and create opportunities, they are taking their businesses and those jobs and moving across the border. They're moving to places like Florida, Texas and Arizona," said John Tillman, Illinois Policy Institute.

On Tuesday, business leaders told the General Assembly that the increase would be a job killer.

"It is a message to small business and large businesses that Illinois is not interested in having you stay in this state," said Greg Baise, Illinois Manufacturers' Association.

Neighboring states roll out the welcome wagons

Governors of some neighboring states quickly jumped on the issue. Republican Wisconsin Gov. Scott Walker, who took office last week, has already proposed a tax cut for businesses that relocate to Wisconsin from other states. He invited companies to head north.

"Years ago Wisconsin had a tourism advertising campaign targeted to Illinois with the motto, 'Escape to Wisconsin,"' Walker said Wednesday in a statement. "Today we renew that call to Illinois businesses, 'Escape to Wisconsin.' You are welcome here."

Quinn scoffed at the notion. "Lots of luck to them, but that's not going to happen," he said.

Democrats countered that even with the increase, Illinois' tax rate will be lower than in many neighboring states -- Iowa's top rate is 8.98 percent, Wisconsin's is 7.75 percent. They also maintain that without more money, state government may not be able to pay employees by the end of the year.

Democrats also bristled at being blamed for the state's financial problems, although they've controlled the governor's office and both legislative chambers since 2003.

They said some of the problem began under Republican governors and that Republicans backed some budgets that increased spending. They argued the national recession sent state revenues into a nosedive and that Democrats already have cut spending by billions of dollars.

The new tax money will balance the state's annual budget and let officials begin chipping away at the backlog of unpaid bills. Borrowing money, and then repaying it with a portion of the tax increase, would have allowed those bills to be paid immediately, aiding organizations that provide services for the state but go months without being reimbursed.

The delay and the spending limits are "very troubling" to those groups, said Sean Noble, policy director for Voices for Illinois Children, a member of the statewide Responsible Budget Coalition. Still, he called the tax increase "an enormous step" toward putting Illinois on sound financial footing.

The Associated Press contributed to this report. All rights reserved.