Democrats introduce $3 billion income tax hike

Plan would double state income tax for high earners

By ADRIANA COLINDRES
STAFF WRITER

Friday, April 04, 2008

Illinoisans earning at least $250,000 a year would pay twice as much in state income taxes as everyone else under a plan Rep. Mike Smith, D-Canton, unveiled Thursday. WEB EXTRA: Where the $250K residents live (pdf)

Smith said his proposed constitutional amendment targets the state’s highest earners — about 107,000 of Illinois’ 5.6 million taxpayers. Their individual state income tax rate would rise to 6 percent, up from the present flat rate of 3 percent. People earning less would continue to pay 3 percent.

The higher rate would generate about $3 billion in new revenue, Smith said. The money would be divided roughly equally into three pieces: for education, for infrastructure and for tax relief for people earning less than $250,000.

“I think our (flat) tax is regressive currently,” Smith said, explaining why he is pushing the plan. “And I’ve just become frustrated. We’re not moving forward on a capital budget. We’re not moving forward on more money for education.”

For the change to take place, however, several hurdles quickly must be cleared in the legislature and with the general public.

By early May, lawmakers would have to approve Smith’s proposed constitutional amendment by a three-fifths vote in the House — where Republican support would be needed — and in the Senate.

Voters then would be asked to decide. If the amendment appears on November ballots, it could be approved in either of two ways: by winning 60 percent of the vote on the amendment itself or by attracting a number of votes that’s equal to a majority of votes cast in the entire election.

Smith’s proposal, designated as House Joint Resolution Constitutional Amendment 42, is poised to take an initial step next week. It is scheduled for consideration in front of the House State Government Administration Committee, which meets at 8:30 a.m. Wednesday.

Some lawmakers hailed the idea of boosting taxes for people with high incomes.

“This is the Robin Hood referendum,” said Rep. Joe Lyons, a Chicago Democrat who joined Smith and about a half-dozen other House Democrats at a state Capitol news conference. “Let’s take from the wealthy and give to the poor.”

But other legislators raised questions or rejected the proposal outright.

“Good luck,” said Rep. Frank Mautino, D-Spring Valley. “Color me ‘no.’ I’m not doubling anybody’s tax rates in a recession.”

“Until we learn how to control our spending, we’re always going to be short, no matter how much we raise taxes,” said Rep. Rich Brauer, R-Petersburg. “I think it’s ridiculous.”

“At this time, I wouldn’t commit to it,” said Rep. Raymond Poe, R-Springfield. “At this point, it’s interesting. Let’s take a look at it.”

Some of the critics said that raising the state income tax rate for people earning $250,000 or more would drive business out of Illinois. Small businesses often are set up as Subchapter S or limited-liability companies, which enables their shareholders to pay the state’s individual income tax rate, rather than the corporate income tax rate.

“By attempting to go after so-called wealthy individuals, the biggest category you’re getting is small-business owners,” said Todd Maisch, vice president of government affairs for the Illinois Chamber of Commerce.

Legislative leaders refrained from saying much about the proposal Thursday. Steve Brown, spokesman for House Speaker Michael Madigan, called it “an intriguing idea” but said Madigan hasn’t yet taken a position.

Smith’s legislation is just one of the pending measures that call for a state income tax hike.

Senate Bill 2288, for instance, would raise the state’s personal income tax rate from 3 percent to 5 percent, and the corporate income tax rate from 4.8 percent to 8 percent. The resulting revenues would be spent on education, property tax relief and paying down state government’s debt.

That bill passed a Senate committee in February, when its sponsors called it a work in progress.

Another proposed constitutional amendment, labeled as SJRCA89, would create a graduated state income tax system, which means people who earn more would pay more. At present, Illinois has a flat income tax system, in which individuals pay one rate and corporations pay another rate, regardless of income level.

That measure, introduced Wednesday, awaits consideration in the Senate.

Gov. Rod Blagojevich has vowed to veto any legislation that increases the state’s income tax.

Adriana Colindres can be reached at 782-6292.