Economic report by Gov. Pritzker’s budget office pushes ‘fair tax’ as solution to state’s woes

A required annual report Gov. J.B. Pritzker’s budget office released on Wednesday is unsurprisingly pushing the governor’s preferred graduated income tax plan as the best way to battle the state’s multi-billion dollar structural deficit.

The Gold Coast billionaire last week also tied the release of his tax returns to the graduated income tax, with his campaign touting that the Pritzkers would have paid $2.8 million more in state taxes last year if the system was in place now.

On Wednesday, the Governor’s Office of Management and Budget report concluded there are “few alternatives” if the “Fair Tax” amendment isn’t enacted, including a 15% cut to essential services such as education funding and public safety. Or “the state would need to raise taxes on all households – not just the wealthiest Illinoisans — by 20 percent under the existing flat tax,” the governor’s office said.

The report calls the current tax structure “unsustainable.” If the graduated income tax passes in November 2020, the rates would go into effect on Jan. 1, 2021 and would provide a half year of revenue to the state for the fiscal year 2021, the report notes. The governor’s office estimated the tax change to generate about $3.6 billion in the first year after implementation.

“There are few alternatives if the Fair Tax amendment is not enacted. Illinois would need to consider dramatic budget cuts of approximately 15 percent to many essential services such as education funding and public safety, or the state would need to consider revenue enhancements equivalent to a 1 percent increase in the individual income tax for all households under this existing flat tax,” the report says.

Should the graduated income plan pass, Pritzker wants to put $100 million a year from the new revenues into the Budget Stabilization Fund, or the state’s “rainy day fund.”

While newly legalized adult use of cannabis is mentioned in the report, financial figures are a bit murky. The report notes variables such as the number of licenses issued, the time it takes to fully implement growth and distribution and costs to the state, among other issues, will affect the amount of revenue the state will receive. But the report says the state could gain between a $25 million and $150 million increase in general funds revenue.

Pritzker in June signed legislation that included the graduated income tax rates, setting the stage for an amped up public awareness campaign via Pritzker’s dark money group, Think Big Illinois, and the other side of the debate, Ideas Illinois.

Ashlee Rezin Garcia/Sun-Times file

To go into effect, the graduated tax requires a change in the state constitution. The Legislature passed a voter referendum that will appear on the ballot next November.

The income tax measure the governor signed would tax income between $250,000 and $500,000 at 7.75%. Income from $500,000 to $1 million would be taxed 7.85%, and income over $1 million would be taxed 7.99%. Senate Democrats changed up the governor’s rate plan slightly in separating rates for single and joint filers, an issue many brought up when Pritzker unveiled his preferred rates in March. The corporate tax rate within the package was also raised to 7.99%.

After Pritzker signed the legislation, Illinois House Republican Leader Jim Durkin called the rates “the next step to giving Illinois Democrats a blank check for uncontrolled spending for years to come.”

State Rep. David McSweeney, R-Barrington Hills, has been a vocal critic of the so-called “fair tax.” McSweeney on Wednesday said the report does little to address some of the state’s most pressing issues, such as the need for pension reform and to cut spending.

Seth Perlman/AP

He called the report’s ties to the tax shift “no surprise.”

“Obviously the governor’s number one priority is to raise taxes. That’s what the progressive tax does,” McSweeney said. “The governor is setting up the argument that he needs more revenue. We’re losing more people in the state because of high taxes. We’re now behind Pennsylvania. It’s no surprise that he’s using this to try to sell the progressive income tax, but I believe the citizens of Illinois will reject that next year. People want us to reform pensions and Medicare and cut spending.”