By Howard Foster -
The Illinois income tax is due to fall from 5% to 3.75% in January. Intense pressure is underway on Gov-elect Rauner to support a modification of the gradual phase-out of the huge 2011 increase in personal and corporate tax rates. The rates were increased, we were told by Gov. Quinn, to enable the State to pay its bills. But four years later, the State still owes billions. Where did the additional revenue go? Mostly to new spending programs, and the Republicans have been too quiet about this scandal.
Additionally, the 2011 increase in the corporate tax rate from 7.75%, already one of the highest in the country, to 9.5%, the third highest, is responsible for an exodus of businesses to Wisconsin and Indiana. Illinois has just about the worst business climate in the country and second highest overall state and local tax burden.
Mr. Rauner’s first real test as a fiscal conservative is underway. If he supports any law which adjusts the personal income tax rate above 3.75% or the corporate tax rate above 7.75%, then we will learn all we need to know about him. He will expose himself as another fluffy Republican pushover in the mold of prior governors. He certainly presented himself to the state as a breath of fresh air not beholden to the ossified and bloated state agencies with insatiable demands for revenue. It’s true the Democrats have super-majorities in both houses of the General Assembly and may not want to help Rauner hold the line. But he has many powers at his disposal to shift revenues to where they are needed, possibly resulting in more unpaid bills, but being able to hold the line on new taxes.
There will also be pressure to amend the Illinois Constitution to deal with pension obligations AND enact graduated income tax rates. Currently, only one single rate is allowed, meaning higher income taxpayers pay the same rart as lower income residents. This is the single best revenue provision of the 1970 Constitution and needs to be retained at all costs. If Rauner agrees to any sort of change, he will have betrayed his base. It might be necessary to amend the Constitution to change the guaranty clause on pensions for state employees. But that can be done without a new constitutional convention where wholesale changes will be made by a heavily Democratic and public sector delegates.
The state is experiencing the consequences of decades of overspending, over unionizing, and overpromising on pensions. Republicans are partly to blame. Prior Republican Governors have been too conciliatory. Rauner is supposed to be different. We will soon find out if he is.
