Ironies Abound

You’d think the irony of an income tax increase that’s generating new revenue for Illinois while it’s being derided in the press and hated by the public would be enough. But no, when it comes to Illinois politics, there are more ironies to be found.

First, there’s de-coupling, that easy-to-accomplish but widely unconsidered revenue-producing proposal put forth by PCG and other members of the Responsible Budget Coalition (RBC) during the 2011 Spring Session of the state legislature. We lobbied hard for “de-coupling” from the federal “bonus depreciation” tax break. We were initially optimistic about passage of this vehicle for increasing revenue to pay some of the state’s back bills and reduce cuts to vital services in the human service, health care, and education sectors. After all, the General Assembly had passed de-coupling legislation in 2002 with bi-partisan support. However, many legislators and lobbyists from the business sector inaccurately characterized de-coupling as yet another tax on businesses in Illinois, and de-coupling never gained any traction, as we say in Springfield.

Fast forward to the final week of Veto Session (November 8-10), and, lo and behold, de-coupling has emerged as a great idea! Unfortunately, this is not good news because the new revenue—approximately $570 million if retroactive to January 1, 2011—will be used to fund the significant tax incentives or loopholes, depending on your point-of-view, being put in place for two large, highly profitable businesses: the CME Group (previously known as the Chicago Mercantile Exchange) and Sears Holding.

As William McNary said at the November 8th subject-matter hearing in the House Revenue and Finance Committee, “It makes no fiscal sense to use a temporary revenue source to fund a long-term tax loophole.” Yet, it is quite possible that is what will happen. While some legislators seem reluctant to take this step, everyone is more reluctant to face the prospect that these two big businesses might follow-through on their threats to leave Illinois if they do not get significant tax breaks.

Another irony of the Veto Session is the sudden re-appearance of the Earned Income Tax Credit (EITC), the sliding-scale refund available for low-income working families who claim the credit on their federal and state income tax returns. PCG has worked with the Shriver Center and Heartland Alliance for several years in an effort to get the General Assembly to raise the EITC from 5% of the federal credit (the lowest state EITC in the nation) to 15 or 20% as a means of generating some tax relief and fairness for low-income, working families in Illinois. Previously, the EITC garnered bi-partisan support, but in the past couple of years, only the Senate was willing to talk about the EITC as a part of the tax increase package. The House never gave it serious consideration, at least partly because of Illinois’ substantial deficit.

Now, in Veto Session, the Governor has indicated that he wants some tax relief for working individuals and families as a part of the tax incentive package—SB 397, Amendment #4—for CME and Sears. So the EITC is back on the table. Low- and middle-income working families desperately need tax relief—the income tax increase has hit them particularly hard. But, is the price too high? The fact remains that the largely unfunded tax loophole being considered in the General Assembly right now is likely to add significantly to the current deficit and cause further cuts to the programs and services needed most by the very families who would benefit from an increase in the EITC.

These developments have made for one ironic Veto Session.

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