SPRINGFIELD — A graduated income tax package that differs slightly from one proposed in March by Democratic Gov. J.B. Pritzker advanced out of the Senate Executive Committee on Tuesday along partisan lines.
The three bills include a repeal of the Illinois estate tax and a conditional property tax freeze for school districts provided certain state funding requirements are met. All of the measures passed without any Republican support.
The Senate version – included in Amendment 1 to Senate Bill 687 — raises the top income tax rate to 7.99 percent from 7.95 percent in the governor’s plan and separates the rate structures for single- and joint-filing persons. For single filers, the maximum rate kicks in at $750,001 and applies to every penny of income. For joint filers, that rate takes effect on earnings greater than $1 million, the same as in the governor’s plan.
The corporate tax rate would be raised to 7.99 percent as well, slightly higher than Pritzker’s proposed 7.95 percent hike from its current 7 percent rate. Businesses also pay a corporate property replacement tax, however, which makes the top corporate rate 10.49 percent under the Senate plan.
Sponsor Toi Hutchinson, an Olympia Fields Democrat, said lowering the threshold for the top rate of single filers was an attempt to address the so-called “marriage penalty” without drastically decreasing anticipated revenues.
She said a Center for Government Forecasting and Accountability analysis shows the tax will bring in an added $3.57 billion in revenue from individual taxpayers and $350 million from raising the corporate tax rate. These estimates were based on 2016 figures, Hutchinson added.
State Sen. Jason Barickman, a Bloomington Republican, questioned whether the figures were reliable, and suggested using a three-year trend from 2014 to 2016 to project 2021’s revenue.
Barickman said uncertain estimates, along with lowering the top bracket from Prtizker’s initial proposal, were indicators that nothing would prevent the General Assembly from voting to raise taxes on lower income earners in the future.
Hutchinson responded that the General Assembly already has the authority to raise taxes on everyone, and the flat tax would have to be increased from its current 4.95 percent rate to at least 6 percent on all Illinoisans to generate the revenue projected from the graduated tax.
While the Senate plan is not final, Pritzker’s office released a statement in support of the committee process Tuesday.
“From day one, Governor Pritzker has made clear that he prioritizes negotiations with the General Assembly on the fair income tax,” spokesperson Jordan Abudayyeh wrote. “Today represents another important step in the negotiations, and we look forward to continuing those conversations with stakeholders in the House as well. Governor Pritzker’s focus on making our system more fair means that 97 percent of Illinois taxpayers will pay the same or less in income taxes, while only those making more than $250,000 will pay more.”
Outside of the top brackets, the marginal tax rates in the Senate plan are 4.75 percent from $0 to $10,000; 4.9 percent from $10,001 to $100,000; 4.95 percent from $100,001 to $250,000; 7.75 percent from $250,001 to $500,000 and 7.85 percent from $500,001 to $1 million.
For single-filing persons, tax rates are the same up to $250,000, while the 7.75 percent rate applies from $250,001 to $350,000 and the 7.85 percent rate applies from $350,001 to $750,000.
Republicans also questioned a provision in the bill requiring Illinoisans to file their state income taxes with the same joint or single status they list on their federal forms. For couples living in different states, committee Democrats said, only money earned in Illinois could be taxed in the state, which is the same as current law.
The Senate plan includes an additional $100 million for the Local Government Distributive Fund, which helps pay for the administration and infrastructure costs of local governments. This fund faced several cuts in recent years.
The package also includes a $100 income tax credit per child, which would not be available once a single filer’s income exceeds $80,000 and a joint income exceeds $100,000.
Amendment 1 to Senate Bill 690, carried by Bunker Hill Democratic Sen. Andy Manar, would offer property tax relief provided the state fully funds K-12 education in its operating budget beginning in 2021. This would require $350 million annually for the new school funding formula and about $300 million for mandated categorical payments, Manar said.
If those needs are met, the property tax rate would be frozen for the coming year and every year in which the state meets the payment requirements. The process would take place annually and would take effect only if the graduated tax amendment becomes law.
The bill contains exceptions for levy increases for debt approved through a local referendum and for pension payments.
“The concept here is to put a credible proposal on the table to do what I think we all want to do, which is turn off the spigot of property taxes and make the state budget the predominant source of how we fund public schools in the state,” Manar said.
Senate President John Cullerton, a Chicago Democrat, also advanced Amendment 1 to Senate Bill 689, which would repeal the estate tax. This repeal is also contingent on passage of the graduated tax amendment, and would phase out about $300 million in revenue, according to a fiscal year 2020 estimate from COGFA.
In order for a graduated tax to become permissible in Illinois, three-fifths of each the state House and Senate must vote to put an amendment question on the 2020 presidential ballot, at which time voters will have the final say on its passage.
Pritzker has said he would like the Legislature to approve a specific rate package prior to the public’s vote on the amendment question, and it would be signed into law if the amendment passes.