Executive Director
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April 30, 2019
Special Report - Graduated income tax rate legislation considered by Senate Executive committee

At around 1:00 this afternoon, three shell bills were amended to deal with taxes and then immediately posted for Senate Executive committee at 2:00. The bills were considered as a package.  SB 687, SB 689, and SB 690.

SB 687 (Hutchinson) amends the Illinois Income Tax Act to establish a graduated income tax rate structure, effective for tax years beginning January 1, 2021.  

The bill provides for a modified version of the graduated rate structure originally proposed by the Governor.  The bill would raise the top rate on individuals and corporations to 7.99% (10.49% for corporations with the 2.5% replacement tax.)

The bill differs from the Governor's proposal in that partially eliminates the "marriage penalty" that was present in the Governor's proposal.  As you will recall, the Governor's proposal imposed a 7.95% income tax rate of all income of taxpayers filing returns with income in excess of $1,000,000.  Under SB 687 the top rate of 7.99% would apply to income of taxpayers filing individual returns of in excess of $750,000 and for joint returns in excess of $1,000,000.

SB 687 also requires taxpayers filing joint returns federally, to file joint returns with Illinois.  As was noted in testimony, this would be a problem for any joint return filers who are residents of different states - Senator Oberweiss explained that he is a resident of Illinois and his wife is a Florida resident so his wife's income would be subject to Illinois taxation under this proposal.

I testified in opposition to the bill.  I explained the Chamber's general opposition to a graduated income tax.  I noted that the legislation is designed to raise just enough revenue to close what has been identified by the Governor as the structural deficit in the budget.  

I noted the changes in this legislation from the Governor's original proposal - increasing the top rate, and increasing the number of taxpayers subject to higher taxes by virtue of dropping the starting point for the highest rate on individual taxpayers from $1,000,000 to $750,000. 

I explained that the adoption of a graduated income tax will make it easier for the General Assembly to increase rates by taxing the "wealthy" when additional revenues are needed by state government or an interest group determines that a particular type of income should be taxed at a higher rate.

I pointed to fact that the current proposal would tax all corporations at 7.99%, although under the proposed constitutional amendment,   SJRCA 0001, would authorize a graduated corporate income tax structure.  I also noted that the State of Connecticut, has just seen a proposal to impose a 2% surcharge on capital gains income.

During questions from members on the proposal, Senator Hutchinson was asked if this was the Governor's legislation.  Based on her answer, it does not appear that the she introduced this amendment at the behest of the Governor.

SB 687 was voted out of the committee on a partisan vote.

SB 689, sponsored by Senate President Cullerton, as amended would repeal the Illinois Estate and Generation-Skipping Transfer Tax Act to repeal the Illinois estate tax and the Generation Skipping Transfer Tax effective January 1, 2021.  The bill passed out of the committee on a partisan vote.  

We did not take a position on this legislation because it was a portion of a package of bills with the graduated income tax legislation.The proposed repeal is political gamesmanship by the Senate Democrats.  The Senate Republican members of the committee also voted the bill on that basis.

SB 690 sponsored by Senator Manar, as amended is a property tax freeze bill that would extend the Property Tax Extension Limitation law beginning with levy year 2022 to certain school districts and limit the increase in property taxes to amounts approved by voters by referendum. The bill passed out of committee on a partisan vote.

We did not take a position on this legislation because it was a portion of a package of bills with the graduated income tax legislation.  Again this was political gamesmanship by the Senate Democrats.

Had the Senate Democrats wanted this to be a true package of legislation, all of these measures could have been proposed in one bill.  In my estimation, including all three tax measures in one bill would not violate the Illinois Constitution's single subject limitation on legislation.  

The package was divided into three bills so the Democrats could get the republicans on record as voting against an estate tax repeal and a property tax freeze.  Or, if the Republicans had voted for the estate tax repeal and the property tax freeze, the Democrats could have contended that the Republicans were begin fiscally irresponsible by voting for cuts without offsetting revenues.

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