SPRINGFIELD – Faced with an expected $3 billion budget hole from an expiring income tax increase, Illinois lawmakers are grappling with whether to raise taxes to avoid major cuts to schools and social services next year.
With six weeks left in the spring session, Democrats must weigh the political risks of extending a tax hike in a year Republicans are making streamlined government spending a focal point in their campaigns for governor and legislative seats.
Lawmakers could make the 2011 temporary income tax increase permanent or change the state’s tax code from a “flat” tax, where everyone pays the same rate, to a progressive system, which taxes higher earners more.
House Speaker Michael Madigan last week abandoned a third proposal that he’d floated, to boost education funding by tacking a 3 percent surcharge on all earned income over $1 million. Madigan couldn’t get enough votes to push his plan through the House, despite a Democratic supermajority of 71 members.
Beyond the partisan divide, the Democratic caucuses in the House and Senate face internal battles.
“Outsiders think that as a Democratic majority we’re monolithic,” said state Rep. Jack Franks of Marengo, who was one Democratic vote against the millionaires tax, and is opposed to the other two tax proposals as well.
All 118 state representatives and 19 of 59 state senators are seeking re-election.
During his budget address last month, Gov. Pat Quinn warned of “extreme and radical” cuts if the state’s current personal income tax rate of 5 percent drops to 3.75 percent as scheduled on Jan. 1.
For weeks, agency heads have appeared before appropriations committees and spelled out doomsday scenarios if the tax expires, including the forced layoffs of 13,000 teachers across the state, higher university tuition and the closure of 10 historic sites.
Madigan has said he wants to “resolve” the issue of extending the tax increase before the end of the spring session May 31, a plan Senate Democrats say they support, if the proposal first starts in the House.
“The Senate as an institution is designed to be able to take more difficult political positions,” Sen. Don Harmon said, referring to the chamber’s lengthier terms. “Yet, with an issue as delicate as taxes there is a reluctance to take a vote unless there’s some certainty that we’ll cross the finish line.”
Republicans vow to fight an extension of the higher income tax.
“I believe these taxing positions Democrats have taken are going to drive more businesses and job creators out of the state,” House GOP Leader Jim Durkin said. “No one’s ever going to convince me we have a revenue problem.”
David Yepsen, director of the Paul Simon Public Policy Institute, said it’s advantageous for the Legislature to act on the extension of the tax increase sooner rather than later.
“It has to be done, it’s not going to get any easier the longer they wait,” Yepsen said.
An alternative proposal being debated by the Legislature is a major overhaul of the state’s income-tax structure that would move to a graduated system that would require more from the wealthy. The graduated income tax system is used by the federal government and 34 states.
The Illinois constitution currently mandates a flat tax for all income levels, so a graduated tax would require a constitutional amendment. But lawmakers adjourned Thursday without addressing the issue.
Both chambers would have to approve the resolution by a three-fifths vote by May 4 to place the question on the ballot for this fall’s election. The chances of that happening are unclear.
An earlier proposal by state Rep. Naomi Jakobbson of Champaign was voted down in committee, but two complementary proposals are still circulating in the House and Senate.
One of those proposals, from Chicago Democratic state Rep. Christian Mitchell, has picked up 40 co-sponsors in recent days, indicating there is appetite for the proposal in the House as well as the more progressive Senate.
A Better Illinois, which has the support of a number of the state’s public employee unions, has gathered 250,000 signatures in support of the effort, spokesman Kelly Steele said.
Recent polls by the Paul Simon Institute and others that show state residents are more supportive of a progressive tax than keeping the income tax increase in place, said Anders Lindall of the American Federation of State, County and Municipal Employees.
Even so, “if it’s ultimately the will of the leaders we’ll support the permanent extension,” Lindall said.
But Republicans say it’s a tax increase in disguise, accusing Democrats of going back on their word that the income tax hike would be temporary. They plan to use that as a talking point in campaigns for a handful of state Senate seats.
“I suspect many of their own constituents feel they’re paying more than enough money to government,” Senate Republican Leader Christine Radogno said.