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Illinois Senate Advances Graduated Income Tax, Estate Tax Repeal

Posted on May 2, 2019

The Illinois Senate has passed a proposed constitutional amendment that would allow for a graduated income tax.

S.J.R. Constitutional Amendment 1 (SJRCA 1) was approved by the Senate on May 1 with 40 Democrats in favor and 19 Republicans opposed, clearing the three-fifths majority vote requirement. Sponsored by Senate Revenue Committee member Don Harmon (D), the measure would remove language in the state constitution that prohibits the state from levying an income tax at graduated rates.

“We’ve made great progress in putting our state back on a path to stability after years of chaos,” Harmon said in a statement. “We still have work to do, and the only options we have besides the fair tax [i.e., the graduated income tax] are to raise taxes dramatically on everyone or enact deep, punishing cuts to state services.”

The proposed amendment, if approved by 70 of the House’s 73 Democrats, would go before voters in November 2020. 

The measure's passage was the first in the wave of income-tax-related bills approved by the Senate on May 1. Three other bills — which are contingent on voter approval of SJRCA 1 — would establish a set of graduated income tax rates that differ from the governor’s proposal; repeal the estate tax; and create a funding trigger to freeze school district property taxes.

S.B. 687, sponsored by Senate Revenue Committee Chair Toi Hutchinson (D), was passed by the Senate on a 36–22 vote. It would establish a set of graduated income tax rates that would top out at 7.99 percent. The bill is estimated to generate $3.57 billion in annual revenue, according to the Commission on Government Forecasting and Accountability (COGFA).

The graduated income tax structure under the bill differs from Democratic Gov. J.B. Pritzker's graduated income tax proposal because it would create separate rates for individuals and married filers, remove the marriage penalty, lower the top bracket from $1 million to $750,000, and increase the top rate from 7.95 to 7.99 percent. But it follows Pritzker’s plan in its application of a flat rate to all income once it reaches the top bracket.

“This rate schedule will allow 97 percent of Illinois taxpayers to pay the same or less. These are the folks we need to protect. There is no other plan on the table to deal with our deficit and backlog of bills,” Hutchinson said in a release by Senate Democrats.

The bill would also increase the corporate income tax rate to 7.99 percent, which would generate about $350 million in annual revenue.

S.B. 687's Fair Tax Rates

Single Filers

 

Married Filing Jointly

Rate

Income Range

 

Rate

Income Range

4.75%

$0 ‐ $10,000

 

4.75%

$0 ‐ $10,000

4.9%

$10,001 ‐ $100,000

 

4.9%

$10,001 ‐ $100,000

4.95%

$100,001 ‐ $250,000

 

4.95%

$100,001 ‐ $250,000

7.75%

$250,001 ‐ $350,000

 

7.75%

$250,001 ‐ $500,000

7.85%

$350,001 ‐ $750,000

 

7.85%

$500,001 ‐ $1,000,000

7.99%

Over $750,000*

 

7.99%

Over $1,000,000*

*All taxable income over this threshold is taxed at the 7.99 percent rate.

S.B. 687 would also provide a $100 income tax credit per child for single filers with income of $80,000 and under, or married filers with income of $100,000 and under. It would increase the residential real property tax credit from 5 percent to 6 percent. S.B. 690, which passed the Senate on a 36–18 vote, would freeze local property tax rates for school districts if mandated funding levels are met for the year. The two property tax cut provisions would generate approximately $365 million annually, according to COGFA.

The net revenue increase from S.B. 687 and S.B. 690 would amount to $3.325 billion, which would cover the estimated $3.2 billion deficit in fiscal 2020, COGFA says.

The National Federation of Independent Business criticized the progressive income tax plan, arguing that more input was needed from the business community. The plan is contingent upon voters approving a constitutional amendment in 2020 that would authorize the state to levy income taxes at a graduated rate.

“Our members are disappointed but hardly surprised that the resolution cleared the Senate. Our members understand the state must do something to fix Illinois’ financial crisis, but raising taxes isn’t it,” Mark Grant, NFIB’s state director for Illinois, said in a May 1 statement. “The fact of the matter is that Governor Pritzker’s progressive tax is going to hurt small businesses — and their employees. The fact of the matter is that higher tax bills mean less money to grow businesses and pay current employees, let alone hire additional ones.”

The Senate also approved S.B. 689, which would fully repeal the estate tax by January 1, 2021, on a 33–24 vote.

According to reporting from Politico, Senate President John Cullerton (D), who drafted the bill following meetings with “high-net-worth constituents,” laughed at the irony of the bill receiving no support from GOP members, who have pushed for the tax's repeal for years. “Higher income tax rates won’t drive them out of state. If they left Illinois, it would be because of the estate tax,” Cullerton told Politico.

The state’s estate tax exemption is currently set at $4 million, and estates exceeding that amount are taxed at 40 percent.

The proposed constitutional amendment and three bills contingent on it now head to the House.

On May 1 Pritzker's office issued a statement praising the passage of the proposed constitutional amendment and the three related bills.

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