General Assembly Passes Tax & Budget Package, No Reforms
Over the weekend, the Illinois House of Representatives and Senate narrowly passed a tax and budget package over objections of Governor Bruce Rauner and the business community. The Illinois Manufacturers’ Association engaged elected officials for many months to find a common sense solution to help end the two-year budget impasse but the final legislation imposes a new five billion dollar tax hike on Illinois businesses and families without any meaningful reforms to make our state more attractive to job creators.
Governor Rauner made good on his pledge and immediately vetoed the three-bill package (SB 6, SB 9, SB 42) but lawmakers in the Senate promptly overrode his action. The House of Representatives is expected to do the same when they can find a date to get all of their members in town that could occur later this week. Here is the Governor’s veto message.
Over the past two years, Illinois’ backlog of bills surpassed $15 billion and the state’s credit rating has repeatedly been downgraded and sits one level above junk status. A K-12 education budget combined with court orders and consent decrees have resulted in Illinois spending more than $39 billion with revenue of less than $32 billion.
Late last week, Democrats and Republicans in the Illinois House of Representatives started working in bipartisan fashion to find agreements to reduce the high cost of workers’ compensation, lower property tax costs, consolidate local governments, and reform the crushing pension debt as part of a comprehensive budget package. However, Speaker Michael J. Madigan abruptly broke off negotiations and chose to call the bills for a vote on Sunday over Republican objections.
The new state budget (SB 6) spends $36.054 billion for the coming fiscal year. It is funded largely with five billion dollars in new tax revenue while lawmakers reduced current spending by three billion dollars. For the past two years, Illinois has been racking up debt at more than $12 million per day largely because of court orders and consent decrees.
New tax revenue (SB 9) comes primarily from a permanent increase in the state’s income tax on corporations and individuals. The tax rates will increase on July 1, 2017, with rates on individuals at 4.95 percent (now 3.75 percent) and corporations at 7.0 percent (now 5.25 percent).
In addition, lawmakers extended the Research & Development tax credit by five years and made the Graphic Arts sales tax exemption permanent. However, they also decoupled from the Qualified Production Activities Deduction (QPAI), eliminated the non-combination rule, and redefined the United States to impose new taxes on energy production located on the continental shelf. Gasohol will be taxed at 100 percent while other fuel blends including biodiesel, biodiesel blends, and majority blended ethanol will have their tax exemption extended by five years.
The tax bill does not include a tax on sugar-sweetened beverages nor does it expand the sales tax onto consumer services that was discussed in the Senate. The IMA objected to a tax on foreign and domestic dividends and it was removed from consideration. Unfortunately, lawmakers did not include an extension of the Manufacturers Purchase Credit that expired in 2015.
Illinois businesses need the fiscal stability and certainty that comes with a state budget. There is absolutely no doubt that the budget battle has created chaos and harmed the state’s economy. However, simply raising taxes without reforming the way that Illinois spends money or making Illinois more attractive for job creators will not change Illinois’ trajectory.
Fifteen Republicans in the House of Representatives and one Republican Senator joined Democrats in providing the necessary votes on the tax hike.
To see how your legislators voted, please click here:
Governor Rauner plans to continue calling lawmakers into special session at least once per week to discuss education funding reform, workers’ compensation, and other reform measures. The IMA plans to continue fighting for changes that will make Illinois more competitive.