Civic Federation plan mirrors some of Senate ‘grand bargain’

The Civic Federation on Friday released a report recommending that the state raise its income tax rate to 5.25 percent as part of a five-year plan that mirrors some of the Illinois Senate’s proposed “grand bargain” bills.

Blaming the 19-month budget impasse on the state’s “worst rated credit in the United States and the most notoriously dysfunctional state government,” the civic watchdog group urged Gov. Bruce Rauner and legislators to “take action immediately” to fix Illinois’ finances.

“Ending the impasse is the right thing to do for Illinois taxpayers, the state’s vendors and especially our most vulnerable citizens, who have been irreparably harmed during the last 19 months,” Civic Federation President Laurence Msall said in a statement.

The state’s backlog of bills as of Friday had reached more than $11.5 billion. That’s expected to reach $15 billion by July, without a budget agreement.

Among the organization’s recommendations is to limit spending growth to 1.7 percent through at least 2022, while stopping the payment of hundreds of millions of dollars in interest penalties on overdue bills. The report suggests the state increase the income tax rate to 5.25 percent for individuals and 7 percent for corporations as of Jan. 1, 2017. The state would be able to later lower the individual tax rate to 5 percent by 2022.

Additional recommendations include expanding the sales tax base while lowering the sales tax rate for goods and services from 6.25 percent to 5.5. percent; limiting business tax expenditures; merging the Chicago Teachers’ Pension Fund with the Teachers’ Retirement System; consolidating and streamlining government units; borrowing to clear the bill backlog and making supplemental pension payments.

The group also recommends eliminating the tax exemption for federal taxable retirement income.

That’s a notion both Senate leaders agree with, but said they wouldn’t act on because of political opposition. The leaders told the Sun-Times last month they’re in support of taxing six-figure retirement incomes but that the measure would be hard to pass. Illinois Senate Republican Leader Christine Radogno, R-Lemont, called it a “third rail.”

A cap on the state spending growth, an income tax hike, the expansion of the sales tax base and a limit of business tax expenditures are all included in the Senate plan — although some of the components remain in flux. The expansion of the sales tax and lowering of the rate is a proposed change that has not yet made it into the plan’s revenue bill. And a spending cap on fiscal year 2018 has also been proposed in the plan’s revenue bill. Creating a path to a “real rainy day fund” is in the plan, as well, as is a bill to borrow money to clear the bill backlog.

The Senate plan includes an income tax hike to 4.99 percent. And there are proposals in the works to lower the sales tax rate but broaden the base. The sales tax would be reduced from 6.25 percent to 5.75 percent, but sales taxes would be added for food, drug and medical appliances. The Senate plan aims to generate $6.5 billion in revenue.