Illinois pounds taxpayers with 66% income tax increase

With a hat tip to the hideous 111th congress, the Illinois legislature passed, and governor Pat Quinn signed, a whopping tax increase on personal and corporate income. The 66% increase in personal income taxes (from 3% to 5%) and 49% increase in business taxes (from 4.8% to 7%) vaults Illinois to the top nationwide in combined personal and corporate taxes. Of course, since businesses only pass their taxes along to consumers as a cost of business, the taxpayers of Illinois will bear this burden as well (story here).

Closing out a contentious lame-duck legislative session, Illinois Democrats handed Gov. Quinn a major political victory early Wednesday by voting to raise the state income tax by 66 percent and buy him some financial stability for his first full term in office.

The state Senate voted 30-29 at 1:20 a.m. to send the tax-hike package to the governor about 10 minutes after paramedics carried state Rep. David Miller (D-Lynwood) off the Senate floor on a stretcher.

Miller was taken to St. John’s Hospital, but as of 6 a.m., he had been released, according to hospital spokeswoman Sherry Puccetti. Puccetti said she believed he was treated for dizziness.

Miller, the Democratic candidate for state comptroller in the November elections, collapsed at about 12:45 a.m. while watching the Senate debate. The 48-year-old lawmaker’s sudden illness cast a pall over the tax vote.

The boost in the amount the state withholds from workers paychecks from 3 percent to 5 percent would drain $800 from the household budget of a family earning $40,000 a year and take effect immediately if the governor signs off.

The tax vote represented only part of what Quinn, House Speaker Michael Madigan (D-Chicago) and Senate President John Cullerton (D-Chicago) sought to shore up an expected $15 billion budget deficit.

Also included in the toxic legislation was authorization to borrow an additional $4B to cover out of control state employee pension obligations – in other words, to kick the can further down the road. Clueless majority democrats lamented the fact that they might have “left something on the table” as they considered even more pain for the taxpayers.

“It wasn’t easy, but we made it through. We accomplished a lot,” said Madigan, who passed the tax hike by a razor-thin 60-57 margin in his chamber. “We could have accomplished more.”

After the Senate vote on the income-tax hike, senators approved a $4 billion borrowing plan already approved by the House that would cover what the state owes this year to its five pension systems.

In the House, the budget vote followed roughly 90 minutes of debate in which ruling Democrats argued there was no other alternative but to raise the income tax to fund vital state-funded human services and education programs afloat.

“Illinois is in crisis, absolute financial crisis, and there is no way we can dig ourselves out of the crisis without increased revenues,” said House Majority Leader Barbara Flynn Currie (D-Chicago), the bill’s chief House sponsor.

Of course spending cuts don’t come to mind with these morons. The $15B deficit is a result of years of profligate spending, political corruption, and unrealistic benefit concessions to the public employee unions. But let’s pound the taxpayers to make up for it. BOHICA!

Meanwhile this has not gone unnoticed by surrounding states who are hoping to capitalize on the anticipated exodus of businesses and wealth producers from dysfunctional Illinois (story here from the WSJ).

Illinois this week earned the honor of becoming the first state in 2011 to sock it to taxpayers, passing a tax hike the size of Lake Michigan. Citizens cried out, legislators deflected, but the most interesting response came from neighboring Wisconsin, where newly elected GOP Gov. Scott Walker had three words for Illinois businesses: “Escape to Wisconsin.”

Across the country, dozens of new governors are taking office, fine-tuning state-of-the-state addresses, polishing budgets. With each event we are seeing a growing national divide.

On one side are wide swathes of the country that this past midterm elected reformers intent on slashing spending and reviving growth. On the other are the holdout pockets—Illinois, California, Massachusetts, Connecticut—drifting further into the abyss of tax and spend. The chasm has huge implications, not just for local and regional politics but for Washington.

Mr. Walker is painting that gulf as big as the Grand Canyon, this week blitzing the Chicago media markets to let suffering Illinois businesses know that while their governor, Pat Quinn, levies a 50% increase in corporate income taxes, Wisconsin is working to enact the total elimination of corporate income taxes for two years for firms that migrate. The “Escape to Wisconsin” line comes from an old tourism campaign, but Mr. Walker thinks it sums up the business choice perfectly. “We’re going to send out that line to every employer in the state of Illinois,” he tells me.

And Wisconsin isn’t the only state willing to siphon off Illinois wealth producers. Indianna Governor Mitch Daniels, a potential 2012 republican presidential candidate, has been doing it for years.

Indiana GOP Gov. Mitch Daniels, who has spent six years taking competitive advantage of dysfunctional neighbors, jokes that living next to Illinois is like “living next to the Simpsons.” He attests to the benefits, noting that Illinois-based Caterpillar recently chose to direct a major investment to build locomotives to Muncie, Ind. And while he recognizes he’s now got some competition, he sees the combined force of reformers in Wisconsin, Michigan and Ohio creating a “divide that could operate long-term in the Midwest’s favor.”

Many states have slashed budgets and used pro-growth tax policy to revive their fortunes. No state has taxed and spent itself to prosperity. As the road that Indiana and Wisconsin and Ohio are on diverges ever more successfully from that of high-tax states, Mr. Daniels says the pressure for change in the latter will grow: “The federal system has a wonderful built-in self-correction mechanism.”

By perpetuating the corrupt Chicago machine-driven government, the taxpayers of Illinois only have themselves to blame. Will they reject their hideous government or leave for friendlier environs? Only time will tell but the clock is ticking on the fiscal collapse of the state economy. If things keep going the way they are, it won’t be long before the rest of us will be forced to bail them out.



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