Last week a massive, massive tax increase was announced in Illinois–did I mention that is was massive? The details of the Illinois tax increase, according to the Chicago Tribune, are as follows:
Under the proposal, the state’s 3 percent personal income-tax rate would rise to 5.25 percent for four years, then fall to 3.75 percent. All told, that’s a 75 percent increase.
The personal income-tax hike is expected to net the state roughly $6.2 billion, and a corresponding corporate income tax increase could raise an additional $1 billion, Cullerton said. The rate businesses pay would temporarily jump from 4.8 percent to 8.4 percent.
The cigarette tax increase, which is expected to raise $377 million, would go into what was described as a “lock box” to increase education funding. Lawmakers said they hoped to double that amount using other funds to provide more than $700 million in new school funding this spring.
To gain votes for the package, the plan also would provide $325 in property tax credits to homeowners this year and a direct check to taxpayers in subsequent years.
As a measure of how desperate state government’s finances are, Cullerton said the state would use the income-tax hike to borrow $12.2 billion. Of that, $8.5 billion would pay overdue bills and $3.7 billion would cover a government worker pension payment lawmakers skipped when putting together the current budget, he said.
Using the relationship that shows the public sector crowds-out the private sector, I recently showed that two other modest tax increase proposals (modest is relative) would impose a significant cost on Illinois. I’ve estimated that under this proposal Illinois’s economy could suffer a $17.3 billion reduction in personal income over the next three to five years as a result of this tax hike, translating into $3,625 less in personal income per household or the loss of 288,473 private sector jobs. Adding insult to injury, the average Illinois household also faces an increase in their state tax burden of $1,598.
The Tax Foundation also finds that this is a very bad deal for Illinois’s business tax climate. They have also found that Illinois would also sport the “highest state corporate income tax in the United States and the highest combined national-local corporate income tax in the industrialized world.” Yikes!
There will also be higher crime due to increased cigarette smuggling stemming from the higher cigarette tax.
If you live in Illinois and are wondering how much this tax hike will cost you . . . check out this tax calculator from the good folks at the Illinois Policy Institute.