Civic Federation Says Illinois Needs a Higher Income Tax

The Civic Federation, the respected, Chicago-based fiscal watchdog, is hardly a bastion of tax-and-spend liberalism.

It was the leading voice in warning that the state's growing pension debt endangered all of state government. It has issued reams of reports over the years warning that the state was spending far more than it was taking in and needed to overhaul its budget approach. Last May, it ripped Gov. Pat Quinn's proposed budget as a formula for continued fiscal disaster. (That prediction, incidentally, has come true, as the state needs to find $1.5 billion to stay on budget through June 30.)

Yet this week, for the second time in less than a year, the Civic Federation issued a warning that the state had put itself in serious financial danger when it allowed its personal and corporate income tax rates to fall by 25 percent on Jan. 1. It also recommends, again, that Illinois consider taxing retirement income and expanding its sales tax as it attempts to stabilize its finances and pay down a $6.4-billion backlog of unpaid bills.

As it recommended last year, the new Civic Federation report advises lawmakers and Gov. Bruce Rauner to raise the personal state income tax rate from 3.75 percent to 4.25 percent and the corporate rate from 5.25 percent to 6 percent. On Jan. 1, a four-year temporary tax increase partially expired, dropping the personal income tax rate from 5 to 3.75 percent and the corporate rate from 7 to 5.25 percent. Letting the tax increase expire arguably was the biggest plank in Rauner's election platform, and he has continued to support the rollback -- while occasionally dropping vague hints that the rate might be open to negotiation -- since taking office.

"The incomplete FY2015 budget resulted in a greater deterioration of Illinois' finances and made the necessary actions to fix this crisis even more painful," said Civic Federation President Laurence Msall. "Illinois cannot afford such a steep rollback of its tax rates without eliminating entire areas of State services or completely restructuring the government."

In last year's "State of Illinois 2015 Fiscal Roadmap," the Civic Federation warned that allowing the 2011 income tax increase to expire would send state government over a "fiscal cliff." It recommended numerous changes in tax policy along with spending cuts.

Lawmakers ignored both the tax and spending advice, a fact noted in the newly released "State of Illinois 2016 Fiscal Roadmap."

"Largely as a result, State income tax revenues are expected to plummet by $5.2 billion from FY2014 to FY2016. Because no structural changes in revenues or spending were undertaken for FY2015, the current year's budget is estimated to have a shortfall of as much as $1.5 billion," the new report states.

Read the rest of the article at Reboot Illinois to see a chart explaining Illinois' tax revenues and a few frustrating facts about the state's finances, including its bill backlog pattern.

For many people, another frustrating part of living in Illinois is the state's transportation system. The Metropolitan Planning Council found that half of all Illinoisans are annoyed by their commutes every day and that Chicagoland drivers spend almost three days a year just sitting in traffic. So how do we ease the issue? Read the MPC's Peter Skosey's analysis at Reboot Illinois.