Illinois Senate approves major income tax hike despite Rauner veto threat

The Illinois Senate approved a major tax increase on Independence Day that’s a key step toward ending a record budget impasse, even as Republican Gov. Bruce Rauner has threatened to veto it.

The 36-18 vote came after a very short debate Tuesday, and two days after more than a dozen Republicans in the House broke ranks with Rauner to join Democrats to support the plan amid growing frustration.

“We don’t have any time left,” said Sen. Toi Hutchinson, D-Olympia Fields. She laid out what is at stake without a resolution, including the state’s credit rating being downgraded to junk status, road workers being laid off, and the dismantling of higher education and social safety net.

While the measure has cleared both legislative chambers, a number of hurdles remain. Rauner is expected to quickly veto the plan once it is sent to him, and legislators in the Senate and House would have to take another vote to override him if the plan is to become law. It’s possible that process could play out late into Tuesday, though attendance has been an issue as lawmakers had dispersed for holiday plans.

The 36 votes in the Senate is the minimum needed both to pass and override a veto. There are 37 Democrats in the Senate, but two voted no. They are Sen. Julie Morrison, D-Deerfield, and Sen. Tom Cullerton of Villa Park. Both likely will face a tough re-election challenge. Sen. Bill Haine, D-Alton, who has been undergoing treatment for blood cancer since February, traveled to the Capitol to vote for the plan.

The measure won the support of one Republican, Sen. Dale Righter of Mattoon, who joined his district’s state representatives that voted for the tax increase on Sunday. Righter’s district is home to Eastern Illinois University, which has been hit hard by the impasse. Still, most Senate Republicans did not support the plan, as they have shown great deference to Rauner throughout budget negotiations during the spring.

For months, then-Senate Republican Leader Christine Radogno of Lemont had worked to cut a deal with Senate President John Cullerton, but those efforts proved unsuccessful after Rauner became involved and made a series of demands that Democrats rejected. Chief among those was a refusal to sign on to a permanent income tax increase unless lawmakers also put in place a permanent property tax freeze, which Democrats said was politically popular but could wreak havoc on the budgets of local schools and governments who rely on those dollars.

Radogno stepped down with Saturday’s start of the new budget year. Her leadership post now belongs to Sen. Bill Brady of Bloomington, who acted as a go-between for Rauner’s office during those talks. Brady called for lawmakers to put off the vote Tuesday to continue working on changes pushed by the governor, including an overhaul of the workers compensation system.

Brady said the plan as is was “incomplete.”

Under the tax measure, the personal income tax rate would increase from the current 3.75 percent to 4.95 percent, which would generate roughly $4.3 billion. An increase in the corporate income tax rate from 5.25 percent to 7 percent would bring in another $460 million. The surplus revenue could be used to cover the cost of borrowing to pay down unpaid bills, Democrats said.

The legislation also would reinstate the research and development tax credit, which would expire in 2022, and increase the earned income tax credit for low-income families. It also would end several corporate tax breaks, including those for companies that operate on the continental shelves or shift production out of state.

An accompanying budget plan, which the Senate also quickly approved 39-14, would have the state spend a little more than $36 billion, about $4 billion more than it currently takes in from taxes.

The movement after years of dysfunction was enough to delay the state’s credit rating from being cut to junk status by Wall Street ratings agencies on Monday, though they warned that much rides on a final approval of the budget package.

Even then, S&P Global Ratings warned that long term damage has already been done.

“Even with a budget, however, it’s likely that Illinois’ finances would remain strained and vulnerable to unanticipated economic stress,” the agency said. “In addition to having accumulated record amounts of payables, the state’s university system has been deprived of state funding since January 2017. If a budget is enacted, the degree to which it closes the state’s structural deficit, provides a pathway for addressing the backlog of unpaid bills, and its impact on cash flows, will be important factors in our review of its effect on Illinois’ credit quality.”

Source link