No state income tax hike in Pritzker’s budget, but ‘painful’ cuts remain to cover $3 billion deficit

Illinois residents won’t get hit with an income tax hike next year thanks to a closing of corporate tax loopholes, an opening of federal funding floodgates and a better-than-expected pandemic showing for state revenues.

That’s what Gov. J.B. Pritzker promised Tuesday in a preview of his 2022 state budget proposal, a spending plan hammered by COVID-19, but not quite as badly as originally feared, according to his office.

The Democratic governor is projecting a $3 billion deficit instead of the $5.5 billion shortfall his administration initially estimated, partly because “the economy performed more strongly than expected,” and partly because the state was early in paying off about $700 million of the $3.2 billion it borrowed from the federal government last fall.

Pritzker had been widely expected to make a push to jack up the state income tax rate to cover the gap, especially after voters in November turned down his graduated income tax referendum that would’ve generated upwards of $3 billion annually by making the wealthy pay higher tax rates.

Instead, aides say Pritzker will make ends meet through “painful” continued cuts.

The state slashed about $700 million from the current budget due to coronavirus revenue declines, and next year’s plan “maintains that fiscal discipline by holding state spending flat,” Pritzker office says.

“There is no question that this budget will include painful choices, but as the effect of the pandemic diminishes over the coming months, the Governor will continue to focus on economic recovery for the hardest hit,” according to a statement from Pritzker’s office.

It’ll be painful for big businesses, too. The proposal “will close corporate tax loopholes” totaling $900 million, though the governor’s office didn’t specify what those are.

Last month, Pritzker proposed a few such changes, one involving freezing the implementation of new business tax credits that were scheduled to take effect at the start of this year. Another corporate hit would have involved legislative action on the state tax code, but it failed in the lame-duck session last month.

John O’Connor/AP file

Pritzker also wants to redirect revenues such as the cigarette tax that had been earmarked for capital project spending to the state’s general fund.

On top of that, the governor is banking on “significant federal funding for education,” his office says.

Meanwhile, services “will be strengthened” at the state’s public health, child welfare and unemployment agencies, Pritzker promised.

The governor is scheduled to outline his full budget Feb. 17.