Maintaining the Current 5% Income Tax Rate.
The Illinois General Assembly is three weeks away from adjourning on May 31 and deeply enmeshed in tax and budget negotiations. The main issue is whether to maintain the current 5% state income tax rate or to let it revert to 3.75% on January 1, 2015, as scheduled.
If the current 5% state income tax is not maintained, Illinois will lose around $2 billion in revenue in FY 2015, which would force drastic cuts in services. The biggest and most devastating impact would fall on the Illinos State Board of Education (ISBE), whose budget would be slashed by $633 million, and the Department of Human Services (DHS), whose budget would be slashed by $400 million. These almost unimaginable cuts would be far greater in FY 2016, when the revenue loss from failing to maintain the current 5% tax rate would be $5 billion.
In addition to the human suffering that this would cause, cuts of this magnitude would be extremely short-sighted from a fiscal standpoint, as they would have multiple negative consequences for Illinois taxpayers. State facilities for people with physical, mental and developmental disabilities would be decertified. Billions in Medicaid and other federal matching funds would go unclaimed. State agencies would be held in contempt of various court orders involving the transition of eligible individuals from institutional to community-based care and would sustain large fines. The state’s credit rating would continue to tumble. Also, the progress that has been made in paying Illinois’s unpaid bills down to $5 billion would be reversed.
Doubling the Earned Income Tax Credit
House Bill 4474, sponsored by Majority Leader Barbara Flynn Currie and with 35 co-sponsors, would double Illinois’s earned income tax credit (EITC) from 10% of the federal credit to 20%. The increase would occur over 5 years, in 2% increments. A similar increase was included with Governor Quinn’s proposal to maintain Illinois’ current 5% income tax rate. Attention to this part of Governor Quinn’s proposal has been diverted by the campaign to promote a fair tax to replace Illinois’s unfair, regressive flat tax requirement. Now that the deadline for getting a constitutional amendment to allow the fair tax on the ballot has passed, there is renewed interest in bringing some measure of fairness to the tax code by increasing the EITC.
The EITC is fully targeted to working poor families. It is a credit on earnings that phases out as a family’s income increases. The federal EITC lifts far more families out of poverty than any other program and lifts millions more families closer to the poverty line. It has always enjoyed broad bipartisan support because of its emphasis on boosting incomes for workers.
A companion bill to HB 4474 is being sponsored by Sen. Jackie Collins in the Senate. These are freestanding bills that could also be combined with the bill maintaining the current 5% income tax rate.
Contact your state legislators
There is no more important time to contact your state legislators than right now, in the next two weeks. Locate your state legislator here. Email or call their offices and let them know you support maintaining Illinois’s current 5% income tax rate and doubling Illinois’s earned income tax credit from 10 to 20 % of the federal EITC.