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Rauner, Rutherford won't rule out taxing retirement income

Illinois is one of only a handful of states that doesn’t tax Social Security, pensions and other forms of retirement income, but two of the four Republican gubernatorial hopefuls appear open to the possibility of doing that.

Private equity investor Bruce Rauner and state Treasurer Dan Rutherford would not rule out the option when asked at Thursday’s final candidates’ debate sponsored by WTTW-Channel 11’s “Chicago Tonight” and the City Club of Chicago.

Earlier this month, the Civic Federation recommended that Gov. Pat Quinn and state lawmakers consider taxing retirement income to help lift the state out of its multibillion-dollar budgetary shortfall, an idea that drew immediate opposition from AARP of Illinois.

Rauner did not categorically rule out taxing retirement income when asked Thursday night.

“I don’t have position on that yet. What I would recommend we do is look at our entire tax code in Illinois, look at every tax and every tax base and every rate and then compare ourselves to other well-run states that we compete with both in the Midwest and around the country,” Rauner said.

“Look at what we tax, what we don’t tax and at what rates. The critical thing is we have got to ease the overall tax burden, the overall spending burden and make our tax code as pro-growth as possible because the real answer to our financial problems is growth,” Rauner said.

Rutherford offered a similar response and said he was open to the issue being “part of an overall discussion.” But he appeared to rule out taxing retirement income for seniors below a certain income threshold.

State Sen. Kirk Dillard, R-Hinsdale, rejected the idea outright, as did state Sen. Bill Brady, R-Bloomington, who answered “absolutely not” when asked the question about taxing retirement income.

“This is another case where you have to look at the unintended consequences,” Brady said. “One of the few ways we’re able to keep our retirees here is we don’t tax their income. If we tax their income, they leave. When they leave, they take their property taxes. They take their consumption taxes. They take their utility taxes. They take their gas taxes. It’s a real drain on our economy and the overall effect.

“We have got to realize you cannot tax more than what we’re doing now. We’re losing revenue. We’re losing jobs. We’re losing people. We don’t’ need any more new taxes,” Brady said.

In pushing for a tax on retirement income as part of a move to phase out the temporary income tax increase that now expires in January, the Civic Federation noted Illinois is one of only three states out of 41 with income taxes that exempts pension income. It also is one out of 27 states that doesn’t tax Social Security income.

Bob Gallo, state director of AARP of Illinois, said taxing retirees will create a hardship for a group of Illinoisans who have left the workforce, often aren’t physically able to work and live on slim financial margins.

“You have a situation where people who have planned for their retirements and planned on the basis of what they know, and this is an unknown,” he said. “You have individuals either living on Social Security alone or on meager pensions and savings, who had not planned for a 5-percent tax or whatever to come off the top of that. It puts them in a difficult situation.

“Why are we targeting this one particular group of individuals for a tax increase without looking at all the various scenarios that could move Illinois in the right direction?” Gallo asked.