Pritzker’s tax shift takes ‘first step’ forward, but will it stumble in House?

The Illinois Senate on Wednesday took the first major steps in advancing a graduated income tax package on strictly partisan lines — but its fate now lies within the Illinois House where changes are anticipated.

The Senate first approved a proposed constitutional amendment that removes the flat income tax structure from the state’s constitution. The amendment to a previous Senate resolution is the first part in getting the Illinois Constitution to require a “fair” or graduated income tax — Gov. J.B. Pritzker’s No. 1 priority.

The Illinois General Assembly must first approve putting a constitutional amendment on the 2020 ballot to ask voters if they want to change that portion of the constitution. Should the Illinois House also pass the amendment — with the exact same language required — it would be on the ballot. It does not require the governor’s approval.

“This is the first step in a decades long effort to modernize our tax code,” State Sen. Don Harmon said in introducing the resolution, while calling the current flat rate structure “archaic.”

The resolution requires a three-fifths majority vote by the Illinois General Assembly. That means 36 votes in the Senate. The Senate voted 40-19 to pass the joint resolution constitutional amendment. All 40 Democrats in the Senate voted for it.

Illinois Senate Republican Leader Bill Brady, R-Bloomington, said the change “severely puts at risk raising taxes higher,” for the middle class. He warned that it could lead to more of an exodus of Illinois residents.

“This is not something that’s good for us,” Brady said, adding it will hurt the state’s ability to attract and retain jobs in the state.

Senate Bill 687, which includes the new proposed rates, was debated for less than 10 minutes, even surprising the bill’s sponsor state Sen. Toi Hutchinson, D-Olympia Fields. State Sen. Dale Righter, R-Mattoon, argued on the Senate floor that the change will make it easier “to reach into your constituents’ pockets and get more money.”

“We should not make it easier,” Righter said. “The national experience … teaches us this will make it easier to do just that.

The legislation that included the proposed rates passed 36-22.

Senate Bill 690 passed 36-18. It would require that beginning in 2022, should the state fully fund K-12 education in its budget, school districts would be denied the ability to raise their property taxes for that year. That provision is contingent on voters approving the graduated income tax amendment.

Senate Bill 689 passed 33-24. It would repeal the so-called “death tax,” or the tax on the value of an estate that someone inherits. The estate tax repeal is also contingent on the passage of the constitutional amendment.

The three pieces of legislation passed by the Senate differ a bit from Pritzker’s preferred plan. Changes include raising the top income tax rate to 7.99 percent — up from Pritzker’s preferred 7.95 percent — and 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 would also be raised to 7.99 percent.

Under current law, all personal income is taxed at 4.95 percent and corporate income at 7 percent.

Senate Democrats said the income tax rate would bring in $3.57 billion, and the corporate tax rate hike would bring in $350 million.

Among the major changes in the plan is that the maximum rate would begin at $750,001 for single filers. For joint filers, the maximum rate would kick in at $1 million.

For single filers, the first $10,000 of income would be taxed 4.85 percent; income above $100,000 would be taxed 4.95 percent; income between $250,001 and $500,000 would be taxed 7.75 percent; income from $350,001 to $750,000 would be taxed 7.85 percent; and income over $750,000 would be taxed 7.99 percent.

Pritzker’s plan, unveiled in March, proposed dropping the personal tax rate for the first $10,000 of income for single and joint filers to a 4.75 percent rate; income above $10,000 to $100,000 would be taxed at 4.9 percent; income between $100,000 and $250,000 would be taxed at 4.95 percent; income between $250,001 and $500,000 would be taxed at 7.75 percent; and income from $500,001 to $1 million would be taxed 7.85 percent. Income over $1 million would be taxed 7.95 percent.

Pritzker has said he wants a progressive income tax approved before the Illinois General Assembly adjourns in May. And he has the support of Illinois House Speaker Mike Madigan and Illinois Senate President John Cullerton. Should it pass, it would set a start button on a lengthy public campaign leading up to a November 2020 referendum seeking the required change to the state constitution.

Pritzker’s office framed the tax change as a way to generate $3.4 billion in additional revenue, while noting that 33 other states have enacted a graduated income tax structure.

Think Big, a dark money group being funded largely by Pritzker, said in a statement it applauded Senate members “who stood up for our middle and working-class families.”

Republicans and business groups have balked at the proposed changes, saying it’s another way of punishing families and businesses. And many criticized the emphasis on bringing in revenue, instead of reducing spending and finding ways to grow the economy.

Ideas Illinois, the other side of the dark money debate over the tax change, said in a statement, “the insider politicians in Springfield took the first step toward a massive Jobs Tax to punish middle class families.”