Graduated Income Tax Defeated
Strong opposition from the Illinois Manufacturers’ Association and others in the business community defeated a Democrat attempt to pass a graduated income tax that would have raised the top individual tax rate to 11.25 percent – second highest in the United States. In addition to issuing a public statement this week, the IMA actively lobbied lawmakers noting that a graduated income tax would have a devastating impact on many small and medium-sized manufacturing companies that pay taxes under the individual rate.
As the IMA reported previously, Democrat Senator Don Harmon (D-Oak Park) and Rep. Christian Mitchell (D-Chicago) earlier filed constitutional amendments (SJRCA 1, HJRCA 59) in the Senate and House of Representatives eliminating Illinois’ flat tax in favor of a new graduated tax. Each constitutional amendment passed an Executive Committee in its respective chamber but neither sponsor called the constitutional amendment for a final vote because of a lack of support. The sponsors did not want to string out their legislative colleagues and have them on the record voting for a massive tax hike when it was doomed to fail.
Constitutional amendments must be passed at least six months prior to the November 8 election and require a supermajority 3/5 vote in each chamber to appear on the ballot. In the House of Representatives, a few Democrats joined every Republican in publicly opposing the constitutional amendment leading to its demise. It is now too late for lawmakers to act because of the six month deadline.
Companion legislation (HB 689) sponsored by Deputy Majority Leader Lou Lang (D-Skokie) would set the actual tax rates if the constitutional amendment had passed the General Assembly and been ratified by the voters in the November election. Under the Democrat plan, the top individual income tax rate would more than double from the current 3.75 percent rate to 9.75 percent generating nearly $2 billion in higher taxes every year. The proposed rates under Lang’s graduated individual income tax are:
Joint Return or Head of Household
$200,000 or less 3.5 percent
$200,001 to $750,000 3.75 percent
$750,501 to $1.5 million 8.75 percent
$1.5 million or more 9.75 percent
Individuals, Estates, Trusts (Other Taxpayers)
$100,000 or less 3.5 percent
$100,001 to $500,000 3.75 percent
$500,001 to $1 million 8.75 percent
$1 million or more 9.75 percent
Small businesses who file taxes under the individual income tax rate such as Subchapter S Corporations will also continue paying the corporate personal property replacement tax of 1.5 percent bringing the total effective tax rate to a maximum of 11.25 percent. Total federal and state income taxes would approach a whopping 50 percent. Corporate income tax rates would remain at 5.25 percent in addition to paying 2.5 percent in corporate personal property replacement tax.
The IMA appreciates Republican Leaders Christine Radogno (R-Lemont) and Jim Durkin (R-Burr Ridge) for their leadership along with every member of their caucus along with Democrat lawmaker Rep. Jack Franks (D-McHenry) for their opposition to this tax hike.
Energy Proposals Unveiled
As the IMA reported earlier this week, an amendment was filed on Thursday afternoon designed to boost Illinois’ nuclear plants and transmission companies while the Senate Rules Committee at the same time released the “Clean Jobs bill” (SB 1485) initiated by environmental advocates. These large and very technical proposals that make major changes to Illinois’ energy landscape are under review.
The IMA supports an “all of the above” approach (nuclear, coal, natural gas, renewables) when it comes to energy and believes that a competitive market results in competition and low rates. Illinois businesses and residents have saved billions of dollars since Illinois deregulated its energy marketplace in 1997. The IMA actively engage in this energy debate because energy prices have a major impact on the manufacturing sector. It’s essential that Illinois maintain a diverse and flourishing energy sector that allows us to have low rates and export our resources.
Senator Donne Trotter (D-Chicago) filed amendment #2 to SB 1585 that contains several findings including that Illinois should (1) encourage the adoption and deployment of cost-effective distributed energy resource technologies and devices (such as photovoltaics); (2) update the existing energy efficiency standards to optimize the smart grid including voltage optimization measures and provide incentives for electric utilities to achieve energy savings goals; and (3) initiate programs to study and test technologies including micro grids and electric vehicle charging stations. With regard to the third point, programs are not required to be cost effective so long as the goal is to determine cost effectiveness with costs recovered through delivery service rates. According to a report in Crain’s Chicago Business, the proposal would ensure that $140 million is spending per year on new solar projects.
The amendment creates a Zero Emissions Standard while noting that it “is necessary to establish and implement a zero admission standard” accomplished through the procurement of zero emission energy credits from zero emission resources in order to “achieve the State’s environmental objectives and reduce the adverse impact of emitted air pollutants on the health and welfare of the State’s citizens.” If enacted, the Illinois Power Authority would begin procuring 16 percent of its energy from zero admission sources (nuclear plants) on January 1, 2017. The procurement cost for this nuclear energy is subject to a 2.015 percent cap.
In 2015, Exelon Generation, Commonwealth Edison, and an environmental coalition all unveiled major energy proposals (SB 1585/HB 3293, HB 2607/SB 1485, and SB 1879/HB 3328), but none of these measures passed the legislature. These proposals entailed a variety of concepts including creation of a Low Carbon Portfolio Standard, increases in the Renewable Portfolio Standard and energy efficiency programs, and advances in the smart grid including expanded solar programs, micro grids, and electric vehicle charging stations.
An energy debate and discussion will occur in the final weeks of session to see if a compromise can be reached.
No Action on Paid and Unpaid Leave Proposals
Despite meeting for three days this week, neither the House of Representatives nor the Senate considered any of the pending paid or unpaid leave proposals that are still alive in the General Assembly. As the IMA has reported previously, several legislators are pushing various leave mandates on Illinois businesses over objections from the IMA.
The most egregious proposals (HB 3297 and SB 2147), sponsored by Rep. Christian Mitchell (D-Chicago) and Senator Toi Hutchinson (D-Chicago Heights), would impose a costly paid family leave mandate on all employers regardless of size. Businesses would be forced to provide at least seven paid days of leave for all employees under each proposal.
HB 3297 would create a bifurcated system where employees at large companies (50 or more employees) earn 1 hour of paid leave for every 40 hours worked and employees at small employers (49 or fewer employees) accrue 1 hour for every 22 hours worked. Employees could use the time for a variety of purposes including sickness, caring for sick family members, the closure of schools, or to care for family members who are victims of domestic violence. Proponents acknowledged that paid leave will increase costs for businesses by 1.2 to 1.9 percent but argue that this “economic justice” will help employers retain employees.
Another proposal (HB 166) pushed by Rep. Mary Flowers (D-Chicago) and passed by the House Labor & Commerce Committee would create the Family Leave Insurance Program administered by the Department of Employment Security and applicable to employers with more than 50 employees. HB 166 imposes a new 0.3 percent tax on the Unemployment Insurance taxable wage base ($12,960) to fund the new paid leave benefit. If there is a deficit in the Family Leave Benefits Account, the Department is authorized to assess an additional 0.1 percent on employers to make up the shortfall. In order to qualify for paid leave, workers would need to work a minimum of 1,000 hours in the previous twelve months (19.2 hours per week) and would be paid two-thirds of their average weekly wage subject to a maximum of 53 percent of the statewide average weekly wage (currently $1,048).
Democrat Andy Skoog (D-Peru) is moving forward on HB 6162 that would expand the use of employer-provided personal sick leave benefits. Suggested by AARP, it mandates that if an employer offers sick leave, the employee can use these days for more than their own illness and can use time to care for children, spouse, sibling, parent, in-laws, grandchildren, grandparent, and stepfamilies.
Legislation (HB 4036) sponsored by Rep. Camille Lilly (D-Chicago) would require small employers to provide twelve weeks (currently 8 weeks) of unpaid leave for victims of domestic violence. In 2009, the legislature passed the Victims Economic Security and Safety Act (VESSA) but limited leave to employers with 15 or more employees in order not to overly burden very small businesses. This legislation that passed the House on a vote of 72-26-0 will require every employer in Illinois to offer twelve weeks of leave.
The IMA is strongly opposed to these costly and burdensome government mandates that will increase employer costs. Employers have the ability to offer benefits to attract and retain employees and a “one-size fits all” approach does not work. In addition to the state legislation, Chicago is also seeking to enact its own paid leave requirement.
Illinois lost 15,000 manufacturing jobs last year and lawmakers need to enact meaningful reforms that will attract job creators rather than saddling companies with additional regulations.
Constitutional Amendments on Education, Remap, Road Fund & Lt. Governor
Despite the fact that lawmakers introduced nearly ninety constitutional amendments, only one actually passed the General Assembly and will appear on the ballot this fall. Many other high profile proposals dealing with K-12 education funding, eliminating the Office of Lt. Governor, and changing the way that legislative maps are drawn all failed to earn enough support.
The House of Representatives adjourned this week without considering Speaker Madigan’s constitutional amendment (HJRCA 57) changing Article X (Education) of the Illinois Constitution to provide the educational development of all persons to the limits of their capacities is a fundamental right (now goal). The proposed amendment provided that “the state has the preponderant financial responsibility for financing the system of public education” and could have required Illinois to pour billions of additional dollars into the K-12 system. Currently, Illinois provides 32 percent of school funding with the bulk of money coming from property taxes.
Politics derailed proposals to eliminate the Lt. Governor’s office (HJRCA 5) and create a new commission to draw legislative maps (HJRCA 58). Each of these proposals successfully passed the House of Representatives but were never considered in the Senate.
The General Assembly did approve HJRCA 36 sponsored by Rep. Brandon Phelps (D-Harrisburg) that would create a lockbox for road funds so they are not siphoned off for non-transportation uses. It easily passed the legislature and voters will have the chance to ratify it in November.
This week, the Independent Maps Campaign submitted nearly 600,000 signatures to the State Board of Elections to put a citizen’s initiative for drawing legislative maps on the ballot. There will be an exhaustive review of the signatures and likely court challenge before it can appear on the ballot. The IMA is a major financial supporter of this Independent Map effort.
Confidential Tax Information Sharing and Contingency Fee Auditing
The Illinois Manufacturers’ Association and other members of the business community including the Illinois Retail Merchants Association, State Chamber of Commerce and Taxpayers Federation of Illinois are vociferously opposing legislation in the Senate that would allow municipalities to share confidential tax information with third parties (consultants, attorneys, accountants, auditors, and financial advisors) for use in contingency fee audits. Sponsored by Senator Mike Hastings (D-Matteson), SB 2933 was briefly debated on the Senate floor but a final vote is expected next week.
Under current law, only the chief executive officer of a municipality may request the information and they are held accountable to strict confidentially agreements under the threat of significant fines. These city officials are allowed access to private tax information collected by the Illinois Department of Revenue (IDOR) including business name, business address, net revenue distributed to the municipality, and a listing of all businesses by account ID number and address. Access to the information is given so that officials can confirm that taxes are being properly collected and local shares of taxes are properly distributed. Municipalities can challenge IDOR findings if they believe there is a discrepancy in the Department’s administration of tax policies.
SB 2933 allows this confidential tax information to be shared with third party auditing firms who contract with municipalities and collect a contingency fee for any additional revenues collected as a result of discrepancies they find in the program. Many of these firms are predatory and may charge as much as 50 percent of recovered revenue while harassing employers. While the Department of Revenue is a neutral arbitrator, unveiling this confidential information incentivizes unscrupulous accounting practices leading to unnecessary lawsuits against businesses and other municipalities.
The IMA and opponents have been working alongside the Department of Revenue to stop this intrusive legislation.
COGFA Releases Monthly Economic Briefing
The bipartisan Commission on Government Forecasting and Accountability (COGFA) released its April economic briefing this week that noted “business reports displayed weakening in economic activity as the first quarter of 2016 evolved, repeating the pattern so noticeable in the prior two years.” Real GDP rose at a diminished 0.5 percent rate in the first quarter of 2016.
Unemployment in Illinois rose from 5.9 percent to 6.5 percent in the last year despite an increase in total nonfarm employment of 79,000 workers.
Total tax receipts decreased by nearly $5 billion from the same time last year largely as a result of the expiration of the temporary income tax, pharmaceutical court settlements, no fund sweeps, and dismal performance of federal sources according to the COGFA report. Individual and corporate income tax receipts are down nearly $3 billion.