What's Going To Happen With Illinois' Income Tax?

This week's "Only in Illinois" starts with a flashback to the Jan. 2, 2014, "Only in Illinois" in which I made a prediction about the future of the Illinois income tax.

At the time, the big question was whether the General Assembly and Gov. Pat Quinn would make the 2011 temporary income tax increase permanent. That increase, passed in the waning minutes of a lame-duck session in January 2011, raised the personal income tax rate in Illinois from 3 to 5 percent. The intent was to erase a mountain of unpaid bills that had the state many months behind in paying its creditors before the rate fell to 3.75 percent on Jan. 1, 2015, and then 3.25 percent on Jan. 1, 2025.

But the state was making little headway on its fiscal status even with record tax revenue coming in. If the rates were allowed to decline as scheduled, the state would lose around $1.8 billion in FY 2015 and more than double that amount in years to follow. There was a strong belief that the Democrat-controlled General Assembly soon would make the 2011 rates permanent.

With the governor's race at the time just getting under way, I predicted the General Assembly would take no action on the temporary tax increase until after the 2014 gubernatorial election. If Quinn was re-elected, the Democratic majorities in the House and Senate would extend the higher rates and make things easier on themselves and the newly re-elected Democratic governor. If a Republican won, they'd let the tax rates drop and let him deal with the fallout.

The latter scenario played out, and Gov.-elect Bruce Rauner urged the General Assembly to allow the 2011 rates to sunset as scheduled.

From Rauner's perspective, the financial trouble caused by losing a hefty chunk of tax revenue would pressure Democrats to bargain with him on issues like workers' compensation, property tax relief, term limits, redistricting reform and -- at the time -- establishing right-to-work zones.

Also, even though the Democrats had not made the higher tax rates permanent during Quinn's last months in office, they passed a budget that assumed they had. Rauner knew coming in that the Democrats' FY 2015 budget was $1.6 billion out of whack, and that created an opportunity to force negotiation.

The Democrats, too, saw an advantage to letting the tax increase expire. Rauner had pummeled them for irresponsible taxing and spending throughout his campaign. If he believed he could pass a balanced budget with roughly $4 billion less revenue in FY 2016, they were willing to let him try.

What should have happened in all this is that Rauner and the Democrats -- which is to say, Rauner and House Speaker Michael Madigan -- should have come together a year ago and hammered out a budget that mixed cuts and saving with the tax increases that both sides had said was necessary.

What happened instead was Rauner in June 2015 vetoed almost all of the budget proposal Democrats sent him. He said it was $4 billion out of balance and he had no choice but to veto it. For their part, Democrats had said all along their budget was imbalanced and asked Rauner to work with them on cuts and revenue. Rauner said he would not do so until the Democrats passed reforms he said are necessary to restore Illinois' economy in the long-term,

Thus, we've got a state operating with no budget and spending far more than it's bringing in. The total could reach $10 billion by June 30, according to Comptroller Leslie Geissler Munger.

Then, in February, Rauner issued his budget plan for FY 2017. He admitted it was $3.5 billion out of balance and urged Democrats to work with him to find cuts and revenue to balance it. But first, they'd need to pass some of his reforms. The Civic Federation, in an analysis released this week, said Rauner's budget actually is out of balance by more than $3.5 billion.

So now we have the absurd situation of both sides having submitted wildly out-of-balance budgets, both sides having admitted that a tax increase will be needed to close the gap but neither side willing to say a word about what state income tax we'll be paying next April.

In January 2014 it was pretty easy to predict what would happen with the Illinois income tax the following year. There were only two choices. This year I'm making no predictions, but I do some explaining on this week's "Only in Illinois."

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