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Local reps: Graduated tax push a nonstarter

An attempt to amend the Illinois Constitution to allow for a graduated income tax based on earnings rather than the flat tax is made with almost every General Assembly.

It either never makes it to a vote or it gets crushed when it does.

But the latest attempt filed with the new General Assembly could gain traction, given the state’s $96 billion in unfunded pension obligations and more than $9 billion in unpaid bills. But local state representatives predict that it will not make it to the ballot.

“It might actually come to a vote because of the dire state of the state, but I don’t know how any legislator can imagine squeezing anything more out of the taxpayers,” said freshman Rep. Barbara Wheeler, R-Crystal Lake.

The latest attempt, prefiled before the new General Assembly was sworn in Jan. 9, would eliminate language in Article 9, Section 3 that mandates a flat income tax and give the option of imposing a graduated state income tax on citizens. It would keep corporate taxes at a flat rate and limit them to no more than the average of the lowest and highest individual rates.

Democratic Reps. Naomi Jakobsson, D-Urbana, and Linda Chapa La Via, D-Aurora, are co-sponsoring the amendment, which is sitting in the House Rules Committee.

Jakobsson said the tax system currently is unfair and does not produce enough revenue. Even though the bill does not set rates or amounts, she said, many taxpayers would likely see a decrease under a graduated system.

“The very wealthy would see an increase, maybe 6 percent of state citizens would see their taxes go up, but 94 percent, if we did this right, would see a reduction in income taxes,” she said.”

Of the 34 states that collect income tax, most have a graduated system like the federal government, while Illinois and six other states collect a flat tax, according to the National Conference of State Legislatures.

It takes three-fifths votes of both houses to put a constitutional amendment on the ballot, where it must be approved by more than 50 percent of those voting in the election or 60 percent of those voting on the issue.

State Rep. Jack Franks, D-Marengo, said he would be surprised if the bill even makes it out of committee. He and other county legislators were not convinced that a graduated income tax would mean lower tax bills for most residents.

“First of all, our temporary income tax [increase] is supposed to start expiring at the end of next year, and it’s looking more and more permanent each day because we’re doing such a bad job in Springfield,” Franks said. “I don’t see how anyone can say with a straight face to trust Illinois with more of our taxpayer dollars.”

Democratic lawmakers in the final hours of the January 2011 lame-duck session approved the largest tax increase in state history, raising tax rates 67 percent on individuals and 46 percent on businesses. Individual taxpayers now pay a state income-tax rate of 5 percent, and businesses pay 7 percent.

Supporters touted the increase as an attempt to get out from under a shameful backlog of unpaid bills, but almost all of the new income has been swallowed by the state’s ballooning public pension obligations. The state’s present backlog of unpaid bills now is worse than it was when the tax increase was approved.

Opponents, who were skeptical in 2011 that the tax would be allowed to start expiring as scheduled in 2015, are even more so now as state finances have gotten worse. The state’s credit rating in the past two months has been downgraded by two of the three major credit rating agencies and had its outlook changed to negative by the third.

All three agencies – Standard & Poor’s, Moody’s Investors Service and Fitch Ratings – cited legislators’ repeated failure to advance pension reform.

Freshman state Rep. David McSweeney, R-Barrington Hills, said he is very concerned that the amendment will gain momentum. He told the Northwest Herald last month that he believes one of the reasons pension reform never moves forward is so lawmakers can force a crisis and push for a graduated income tax.

“My concern is, as [Chicago Mayor] Rahm Emanuel says, never let a good crisis go to waste,” McSweeney said. “I’m concerned the Democrats will use this as an excuse to go to a graduated income tax, and I think that’s a real threat.”

McSweeney on Friday was named to the House Revenue and Finance Committee, which he said puts him in a good position to fight the proposal. But McSweeney’s concerns over the proposed amendment’s chances can be tempered somewhat by legislative history.

Proposed constitutional amendments rarely make it to voters. More than 80 were proposed under the previous General Assembly. Only one, an attempt to curtail governments’ ability to increase pension benefits, made it to the ballot, and was defeated by voters last November.

Also, the fact that the Democrats now hold supermajorities in both houses along with the governor’s office is not a guarantee that the graduated tax amendment will go to the voters. The last attempt that came to a floor vote in 2008 was soundly defeated, 35-19, in the Senate, where Democrats then as now held a supermajority.

Jakobsson said the state’s financial distress could prove to be the impetus that moves the amendment forward this time.

“I’m certainly hoping that it has much stronger legs this time around, and I think the time is right,” Jakobsson said.

But should it go to voters in 2014, state Rep. Mike Tryon, R-Crystal Lake, said he doubts that Illinois voters will be in the mood to trust lawmakers with setting new tax rates.

“I don’t think Illinoisans are undertaxed. I think the state overspends,” Tryon said.

On the Net

You can read the text of the proposed amendment to the Illinois Constitution to adopt a graduated income tax at http://shawurl.com/i14.

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