Civic Federation's Plan To Balance State Budget Sticks It To Retirees

By Chuck Sudo in News on Mar 3, 2014 9:40PM

Government finance "watchdog" The Civic Federation released a 47-page report Monday they claim will balance Illinois’ budget deficit in a five-year span but one of the linchpins of the report contains a potentially unpopular plan to pension payments to retirees.

The plan contains a mix of new taxes, extending the income tax hike Gov Pat Quinn signed into law in 2011 for an extra year before phasing it out, completely paying down the state’s current $5.4 billion backlog of unpaid bills, establishing a “rainy day fund” in case Illinois slides back into debt and restoring the full share of state income tax revenues to local governments.

But the aspect of the plan sure to anger seniors and public sector unions is a proposal to tax retirement income such as pensions, IRAs and Social Security payments, which the Civic Federation calls “broadening the income tax base.” Civic Federation president Laurence Msall acknowledged this proposal would be politically toxic but that “politically attractive efforts are no longer enough to address the enormous financial challenges we’ve created for ourselves.”

“All Illinoisans will need to share the burden of fixing the State’s problems,” Msall added.

Quinn is expected to deliver his 2015 budget address March 26 before a joint meeting of the Illinois General Assembly. The state income tax hike is due to expire in 2015 and Quinn has not revealed whether he will allow the hike to sunset or if he’ll extend it. The Civic Federation’s plan calls for a one-year extension of the hike to avoid what it calls a “revenue cliff” that could cost Illinois $4 billion in revenue in 2016.

After the one-year extension the plan calls for personal income tax rates to be scaled back by a quarter percentage point in 2016 and 2017 and a half percentage point in 2018, to a flat 4 percent. Corporate income tax rates would be rolled back by 1.4 percentage points over a three-year period so businesses would be taxed at 5.6 percent by 2018.

The Civic Federation notes Illinois is one of three states that does not tax pension income and one of 27 states to exclude taxation of Social Security income, hence Msall’s comment about all Illinoisans needing to be on board the plan. What Msall doesn’t acknowledge are the corporate tax loopholes that allow corporations to avoid paying their share of income taxes. According to The IIRON Education Fund, two-thirds of corporations in Illinois pay no income taxes and that burden is passed on to individuals. IIRON and Southsiders Organized for Unity and Liberation (SOUL) have called for a rollback of corporate tax loopholes at the state level and for tax transparency from corporations, asking they divulge how much the pay in taxes to Illinois.

Civic Federation's Plan To Balance Illinois' Budget by Chicagoist