Illinois House committee passes progressive income tax rates without public notice

Bryce Hill

Director of Fiscal and Economic Research

Bryce Hill

Austin Berg

Vice President of Marketing

Austin Berg
May 25, 2019

Illinois House committee passes progressive income tax rates without public notice

In a party-line vote that even fellow lawmakers were unaware of, Illinois House Democrats passed out of committee a progressive income tax rate structure that would take effect should Gov. J.B. Pritzker succeed in scrapping Illinois’ constitutional flat income tax protection.

Illinois House Democrats skirted basic transparency measures in moving one of the most important taxpayer bills of the year on May 24.

The Illinois House Revenue & Finance Committee voted 9-6 along party lines to approve Senate Bill 687, which contains progressive income tax rates that would raise an estimated $3.3 billion from taxpayers. Those rates would go into effect if the General Assembly passes, and Illinois voters approve, an amendment to scrap the state’s constitutional flat tax protection and allow for a progressive income tax.

But the committee abused procedural rules meant to ensure deliberation and public notice, which lead to the bill’s passage in near-secrecy.

While some members of the media and advocacy groups were in attendance at the committee hearing, members of the general public had no opportunity to voice their opinion on the measure in the days leading up to its passage. The bill was never posted publicly for the May 24 hearing.

Committee member state Rep. Margo McDermed, R-Frankfort, called out this maneuver after she was asked to limit her questions to experts testifying before the committee. She noted that citizens were denied the ability to post witness slips supporting or opposing the rates bill prior to the hearing. (The constitutional amendment required for these rates to take effect, Senate Joint Constitutional Amendment 1, has drawn nearly 10,000 opposing witness slips.)

Revenue & Finance Committee Chairman Mike Zalewski, D-Riverside, explained he was not in violation of the rules because the bill was posted for the May 20 committee hearing – though it wasn’t heard or voted upon – and he never technically adjourned that meeting, meaning they remained in a days-long recess. This allowed the committee to call a surprise vote on the rates bill.

“We have not adjourned this committee,” Zalewski told McDermed. “If you want to go back and listen to the tapes … and if any moment I’ve said ‘adjourn’ then we have a different story.”

As a result, Illinoisans had no avenue to voice official opposition or support throughout the week.

“We as a caucus were not told, our staff was not told, that this was going to be heard this morning,” McDermed said on the House floor.

“What does this say about your confidence in this policy – in this measure – when the only way that you can get it through to the floor of this House is by engaging in legislative tricks and shout down people on the other side?”

Beyond McDermed and other Republicans, many Democrats in the House were also unaware the rates had been called to a vote, much less passed to the House floor.

In addition to the surprise calling of the bill, three Democratic members of the committee who have either voiced opposition or withheld vocal support for the progressive income tax – state Reps. Sam Yingling, D-Round Lake Beach; Jonathan Carroll, D-Northbrook; and Stephanie Kifowit, D-Aurora – were substituted out of committee and replaced with “yes” votes.

Illinoisans concerned that the progressive income tax would serve as a Trojan Horse to middle-class tax hikes of up to $3,500  may have more cause for worry, after comments from freshman state Rep. Yehiel Kalish, D-Chicago in the committee hearing. He thought the proposed income tax rates were too low. “I want to be on record saying that I don’t think we go high enough,” he said.

The progressive income tax constitutional amendment allowing for these new rates, SJRCA 1, has already passed the Senate and on May 20 passed the House Committee on Revenue & Finance. It now awaits a floor vote in the House. If the amendment gets 71 “yes” votes, it will be on the ballot for Illinois voters to consider in the 2020 election. Should voters approve the amendment at the ballot box, new, progressive income tax rates would be allowed to go into effect.

The amendment would eliminate the state’s flat income tax protection, empower lawmakers to pass additional income taxes on the same dollar earned, and allow for the nation’s highest tax on business income.

Though the rates plan approved by the House differs in some ways from Pritzker’s original proposal, the overall effect would be the same: a tax hike that would hurt small businesses, drag down economic growth, fail to close the budget deficit or pensions and serve as a bridge to higher taxes for the middle class.

What’s in this progressive income tax proposal?

While Gov. J.B. Pritzker has been campaigning for months on his own proposal, the rates and brackets passed out of the Senate and the House Committee on Revenue & Finance are different from the governor’s. Pritzker’s proposal levied a 7.95% flat rate on the highest income bracket, while the plan currently moving in the General Assembly features a 7.99% flat rate on the highest income bracket. That top bracket also now kicks in at a lower level for single filers: $750,000 instead of $1 million.

The state’s corporate income tax rate would also be bumped up to 7.99% from 7%. Pritzker’s plan hiked the corporate income tax to 7.95%. This does not include the Personal Property Replacement Tax of 1.5% on S corporations and 2.5% on C corporations.

Senate rates differ from Pritzker plan

Senate Democrats, who originally filed and passed the rates bill, explained the changes as an attempt to rid Pritzker’s proposal of the widely criticized marriage penalty, which would subject joint filers to higher income tax rates than they would face if they were single filers. But the Senate plan also fails to eliminate the marriage penalty.

Because there were no changes to tax brackets below $250,000, the penalty still exists for those who would see a tax cut – provided the plan doesn’t change again. Married couples would receive less of a tax break than they otherwise would if they were single.

For those who would face a tax increase, the marriage penalty still hasn’t been fully eliminated. While the single filer brackets have been altered slightly, married filers would still face the possibility of higher taxes under this proposal than they would if they were single.

One of the most frequently stated reasons for enacting a progressive income tax is the need to close the anticipated budget shortfall, currently pegged at $3.2 billion due to further increases in discretionary spending. But the plan currently moving through the General Assembly would fall $175 million short of this goal, according to the Senate Democrats’ own numbers.

Furthermore, even if the state dedicates all of the new revenue from this plan to Illinois’ unfunded pension liability, the progressive income tax rates passed by the Senate and the House Committee on Revenue & Finance will fail to pay off the state’s pension debt – ever.

Although this plan is being sold as a way to shore up state finances, pay down debt and increase services, it will fail to do any of that. Without addressing the structural spending problems that have led to the highest overall tax burden in the nation, a progressive income tax system would only be a bridge to higher income taxes.

And judging by how quickly Pritzker’s “fair tax” promises have receded, it has become clear to taxpayers the ease with which income tax rates could rise under the governor’s plan. Instead, Pritzker and the General Assembly should follow a responsible roadmap to tax relief and restored fiscal health through pension reform and spending restraint

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