Boosting the tax on sportsbooks from 15% to 35% is a winning bet in Gov. J.B. Pritzker’s $52.7 billion proposed state budget, unveiled Wednesday for the next fiscal year 2025, which begins July 1.
Sportsbooks, which accept bets from individuals — almost entirely online — generate about $150 million a year in taxes for the state, but Pritzker’s plan would bring in another $200 million. At 35%, Illinois’ tax rate still would be far less than the 51% that New York, Delaware, New Hampshire and Rhode Island assess.
“When they started, the [sportsbook] tax was way too low because the gambling companies told the state they wouldn’t be making any money,” Anita Bedell, former director of the Illinois Church Action on Alcohol and Addiction Problems, said. “It sounds like they are making tons of money now.”
Another bet in Pritzker’s budget is capping the so-called retailer discount cap. Retailers get to keep 1.75% of the sales taxes they collect to cover the cost of collecting the taxes. Once the collected amount covers the costs, though, the rest is pure profit, mostly benefitting big box stores and other mega-retailers. Placing a cap on the discount would bring more money to the state while still covering retailers’ costs. But whether this measure will remain in the final budget is a good question. We can’t count how many times capping the retailer discount cap has been tried in the past, only to be shot down by stiff opposition.
It’s good to see Pritzker make provisions to continue building up the state’s rainy day fund, which was driven down to essentially zero under former Gov. Bruce Rauner, and set aside extra money for state pension systems, which are underfunded by more than $140 billion and will require extra funding because the state’s Tier 2 pension system doesn’t comply with Social Security’s Safe Harbor formula.
More problematic is Pritzker’s plan to eliminate the 1% sales tax on groceries. We get that Pritzker wants to make taxes more progressive — and the sales tax is anything but, putting more of a burden on those with lower incomes. But getting rid of this tax would knock holes in the budgets of local municipalities, which get the proceeds from the tax. Municipalities can’t easily turn to the property tax for replacement revenue because schools heavily rely on property taxes, driving them up to high levels. School districts do that because the state underfunds schools. Higher-poverty municipalities would have an even harder time replacing the lost revenue.
If the grocery sales tax is eliminated, municipalities should be provided with another revenue stream. Leaving the grocery sales tax as-is would also solve the issue.
Crafting a budget at a challenging time
Among other measures in the budget, which would bring in more than $800 million in new revenues, are money set aside for migrants; a child tax credit for low- and moderate-income families; money to address homelessness; extending past 2024, and raising, a cap how much large corporations write off on their state income taxes to offset losses; more money for quantum computing to help turn the state into a high-tech hub; money to reduce Black maternal mortality rates; more money for K-12 education; boosting staff at Illinois prisons and the Department of Children and Family Services; and helping thousands of mostly low-income families by erasing $1 billion in medical debt.
Also, the state’s match of a portion of the sales tax that funds mass transit would move from the general fund to the state’s road fund. That will free up money for the state, but it won’t help with the projected $730 million operating shortfall that the Regional Transportation Authority faces starting in 2026.
The coming year’s budget arrives at a challenging time. Federal pandemic dollars are drying up. Corporate profits are flattening, as are income tax receipts. The state is once again face-to-face with its long-term structural deficit, in which existing tax revenue sources don’t keep pace with the rising cost of providing services.
Pritzker’s budget will have to run the gauntlet of the legislative process before a final version emerges. As Rich Miller reports in Capitol Fax, the Legislative Black Caucus and the Legislative Latino Caucus are saying they want more money for progressive causes. Other groups, including businesses and road builders, also undoubtedly will be pushing to reshape the budget.
We’re not going to play the odds with a sportsbook on what the final budget will look like. But it should remain one that is based on sound fiscal sense.
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