State needs progressive income tax ‘now more than ever,’ Pritzker says

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CHICAGO, Ill. (NEXSTAR) — The budget Governor Pritzker previously called a “bridge to the future” now has a $4.6 billion hole in it.

The economic impact of the Coronavirus and the Governor’s executive order to stay at home blasted a $2.7 billion crater in this year’s state budget, and a second $4.6 billion hole in next year’s budget, according to a revised revenue forecast from the Governor’s Office of Management and Budget. 

The move to shutter entire sectors of the state’s economy cost the state an estimated $299 million in lost corporate income taxes, $737 million in lost sales taxes, while widespread layoffs and unemployment could cost the state $1.3 billion in lost income taxes, according to the new budget forecast. 

The same forecast also projects losses of $207 million due to the state’s closure of casinos and video gaming terminals. 

In other words, the total cost of COVID-19 to the state’s fiscal year 2021 budget  ($4.6B) will more than triple the entire windfall in the first year under Governor Pritzker’s proposed progressive income tax ($1.4B). Without that extra revenue, Pritzker warns the state’s budget situation would become even more dire. 

The first-term Democrat campaigned on a constitutional amendment to remove the state’s flat income tax and replace it with a graduated rate structure that collects a higher income tax from people who earn more than $250,000 per year. 

In his annual budget address in February, Pritzker estimated the first version of the new rate structure would collect an additional $1.4 billion in Fiscal Year 2021, which begins on July 1, 2020. 

Because the progressive income tax wouldn’t kick in until January 1, 2021, the state could only collect the higher income taxes for half of the fiscal year. The Pritzker campaign previously estimated a progressive income tax could generate $3.4 billion in a full year, though if voters approve the graduated rate structure, politicians could alter and adjust the tax brackets and rates in future years.

If voters reject the progressive income tax at the ballot box in November, Pritzker’s budget office estimates the state’s budget deficit in fiscal year 2021 would swell to $7.4 billion. 

Some critics have called for the state legislature to remove the ballot question from the November ballot given the extenuating circumstances of the Coronavirus and its impact on the economy.

“Raising taxes on the people of Illinois at a time like this is cruel and will only lead to more job losses and a deeper recession,” Senator Jason Plummer (R-Edwardsville) said in a text message on Wednesday.

A reporter asked the Governor if the state should reconsider the progressive tax, given the impact to the state’s economy.

“I would argue, in a way, that we may need it now more than ever,” Pritzker responded. 

“And of course this isn’t just about one year. It’s about fixing the structural deficit that exists for the state,” Pritzker said. “We’re in a pandemic, we’re in an emergency, this crisis is causing a significant disruption to our fiscal year coming up. But we have many years ahead, and I think a fairer tax makes sense to me.”

Moments later, Illinois Republican Party Chairman Tim Schneider condemned the timing of the Governor’s remarks.

“It seems Governor Pritzker has taken Rahm Emannuel’s “never let a crisis go to waste” adage to heart,” Schneider said in a press release. “With a global pandemic that has plunged the state’s economy to depths not seen since the Great Depression, this is the worst possible time to push through a tax hike that will crush small businesses who provide so many of our jobs. Pritzker using a Coronavirus briefing to campaign for the progressive income tax is inappropriate and unfortunate.”

In a recent interview on Capitol Connection, Senate President Don Harmon (D-Oak Park) suggested the the brunt of the economic recession would fall hardest on the low-wage earners and the middle class, and reiterated his support for abolishing the state’s flat income tax system.

“The people who are hardest hit by the pandemic are the same people who would benefit from the ‘Fair Tax,’” Harmon said, referring to the graduated income tax. 

“It is those individuals and small business owners who aren’t earning well north of $250,000, who are worried about losing their jobs, who have already lost their jobs, who have closed their businesses,” Harmon said. “Those are the people we want to give a tax cut to. Those lucky enough to be earning more than that are less likely to be so directly impacted by this pandemic.”

Illinois is in line to collect $2.7 billion in federal relief from the Coronavirus Aid, Relief and Economic Security (CARES) Act Congress enacted last month, but the Governor stressed that those funds cannot be diverted to fill other budgetary holes. 

“These dollars could be used to cover only new expenditures related to Coronavirus,” Pritzker said. “Currently, this funding cannot be used to make up for state government revenue shortfalls that have been a result of Coronavirus. That leaves states to face this unprecedented financial hole on their own. If the Congress doesn’t pass a ‘CARES Act 2’ to support state government.

“It is absolutely critical that Congress pass another stimulus bill to assist states and territories through this crisis,” Pritzker said. 

To date, Illinois has spent $169 million on personal protective equipment and medical devices to battle the COVID-19 outbreak, according to public figures available on the Comptroller’s website.

The Governor’s Office of Management and Budget details the proposed income tax brackets and rates in his graduated income tax plan. These rates and brackets would become subject to change should voters abolish the flat tax in November.

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