By DEANNA BELLANDI, Associated Press
SPRINGFIELD, Ill. – Democrats in the Illinois House voted Tuesday to raise income taxes by two-thirds in a desperate and politically risky effort to end the state's crippling budget crisis.
The legislation would temporarily set the personal tax rate at 5 percent, up from 3 percent now — a 66 percent increase. Corporate taxes would climb, too.
The higher taxes would generate about $6.8 billion a year, Gov. Pat Quinn's office said. That would be a major step toward filling a budget hole that could hit $15 billion this year.
"Time to act like grownups. Time to face the consequences of the actual recession that all the states face," House Majority Leader Barbara Flynn Currie told a committee before it voted to advance the tax increase to the full House.
The increase passed the House 60-57, the bare minimum needed for it to move on to the Senate. With a new General Assembly beginning Wednesday at noon, senators were expected to vote on the measure Tuesday night.
Quinn aides say the Chicago Democrat supports the tax increase, although it is higher than what he had proposed during his tough campaign to be elected to his first full term in November.
In sheer percentage terms, the Illinois proposal could be the biggest tax increase on the long list of increases states have passed while grappling with recent economic woes.
Business leaders decried the proposal, calling it a job-killer because raising the personal tax rate triggers a corresponding jump in corporate rates.
"Based on this particular legislation the only businesses that will benefit are the moving companies that will be helping many of my members move out of this particular state," said Gregory Baise, head of the Illinois Manufacturers' Association.
To win support from some fiscally conservative lawmakers, legislative leaders did agree to impose strict caps on state spending growth. If spending exceeds 2 percent a year, the income tax increase would be canceled, officials said.
"We're really trying to handcuff ourselves and the governor in our spending," said Illinois Senate President John Cullerton, a Chicago Democrat.
He said the limited growth allowed by the cap would almost certainly be eaten up by rising pension and Medicaid costs, forcing spending cuts in many other areas of government.
Democratic leaders also scaled back their original proposal, which would have raised taxes by 75 percent.
The new version calls for the tax rate to drop to 4 percent after four years.
Money from the increase will be enough to balance the annual budget and begin chipping away at a backlog of unpaid bills. Illinois regularly falls months behind in writing checks to schools and universities, businesses that build roads or rent offices to the state, and organizations that provide a vast array of social services.
Democrats wanted to accompany the income tax increase with a boost in the cigarette tax but a proposal to more than double the tax to $1.98 per pack failed. Lawmakers could bring the issue back for another vote.
The bill is SB2505.