SPRINGFIELD – The graduated tax constitutional amendment will be on the November 2020 general election ballot, and the rates that could take effect upon its passage are one procedural step away from the governor’s desk.
On Thursday, the Illinois House voted 67-48 to approve a rate structure that would lower the tax rate on any individual or joint-filing couple making less than $250,000, while raising the rates on those above that threshold.
The passage is another step forward for Democratic Gov. J.B. Pritzker’s marquee agenda item with just one day remaining in the legislative session.
“A fair tax will bring monumental change to this state by protecting working families. 97 percent of taxpayers will pay the same or less, and we will stabilize Illinois’ finances,” Pritzker said in a statement following the vote. “Opponents should be honest that they offer bad options – either cutting schools and public safety to the bone, or raising taxes on everyone by 20 percent. Instead, I stand firmly on the side of working families and fairness.”
The rates have now passed both houses, but a House amendment regarding the distribution of funding to local governments means it will have to go back to the Senate for concurrence. That chamber was scheduled to take up the rates package and two bills establishing a property tax relief fund and task force at a committee meeting Thursday evening.
Upon concurrence in the Senate and the governor’s signature, the bill would take effect on Jan. 1, 2021, only if voters approve the graduated tax constitutional amendment in November 2020. That would require 60 percent of those voting on the question or a majority of those voting in the election to become law.
Per the rate structure approved Thursday, single filers would pay the maximum rate of 7.99 percent on all income once their taxable income tops $750,000. For joint filers, that rate takes effect when income tops $1 million.
For the rest of the brackets, each varying tax rate would apply to only one specific margin of income.
The rates are 4.75 percent on taxable income 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 filers, tax rates are the same as joint filers up to $250,000; but the 7.75 percent rate applies from $250,001 only to $350,000, while the 7.85 percent rate applies from $350,001 to $750,000.
The bill also includes an increase in the property tax credit from 5 percent to 6 percent, and up to a $100 per-child tax credit for couples earning less than $100,000 and single persons earning less than $80,000.
The corporate tax rate would go from 7 to 7.99 percent, not including an existing corporate property replacement tax of 1.5 to 2.5 percent that is not changed by the bill.
In a floor debate preceding passage, members of the two parties sparred over which had the better idea for fiscal stability in the state, what the tax rates would do to businesses and how the state’s long-term problems should be addressed.
Rep. Robert Martwick, a Chicago Democrat who carried the constitutional amendment earlier this week, said the $3.5 billion in added revenue expected to result from the graduated tax is needed to balance the state’s structural budget deficit. He said Republicans, who were unanimously opposed to the measure, were not interested in balancing the budget.
“You’re no longer the party of balanced budgets, you’re just the party of no,” he said. “Fiscal responsibility does not mean saying no. It means balancing your budgets.”
But House Republican Leader Jim Durkin, of Western Springs, said he was proud to be the “party of no” on some of the state’s previously passed unbalanced budgets. He said “history will not look kindly” on the General Assembly for the changes to the tax code and the “anti-business agenda” he said Democrats were pushing in the past four months.
“There’s nothing here to help taxpayers,” he said, noting that high pension costs have gone unaddressed.
Others from Durkin’s party said higher business taxes will drive job creators out of the state when combined with measures such as the minimum wage.
But Democrats said the majority of small businesses are structured as pass-through entities that are taxed at the same rate as individuals, which means any company with less than $250,000 in revenue would see lower rates.
Rep. Mike Zalewski, a Riverside Democrat and the rate bill’s sponsor, said a stable state government will be beneficial to business investment in the state.
“We need to get out of the habit of always being in crisis mode,” he said.
Rep. C.D. Davidsmeyer, a Jacksonville Republican, said dividing taxpayers in brackets would make it easier for future General Assemblies to raise taxes on smaller portions of voters.
But Zalewski said there is no plan to raise tax rates in the foreseeable future once the graduated rate is set.