Comparing Illinois’ financial morass to the challenges the state faced during the Great Depression, Gov. J.B. Pritzker used his first budget address Wednesday to lay out the initial stages of a multiyear road map that ultimately depends upon voters approving a graduated income tax.
In a 37-minute speech, Pritzker vowed to end the days of ideological warfare that fueled a record budget impasse under his defeated predecessor, Republican Bruce Rauner. He sought both compromise and patience — asking Republicans to work with the state’s one-party Democratic rule and urging all legislators to take the long view by enacting multiyear fiscal changes to stabilize Illinois’ shaky finances.
“Budgeting will not be done anymore by taking the state hostage, or by court orders, consent decrees and continuing appropriations but instead by debate and compromise and a return to regular order. We will work together earnestly to solve the state’s problems. We will disagree at times on important things, but the work we all came here to do will get done,” Pritzker said.
“To get to fiscal stability and eliminate our structural deficit, there’s no quick fix. It took decades to get us into this mess. It will take at least several years to get us out of it,” he said. “We must therefore embrace a multiyear approach with fair principles and smart investments in our people. Our state does well when our people do well.”
Read Gov. J.B. Pritzker’s prepared remarks for his first state budget address »
Pritzker said his $38.7 billion spending plan for the budget year that begins July 1 was balanced, but based on a “regressive tax structure that I do not favor and that puts the greatest burden on working families.” It was a continuation of his campaign-themed pitch to replace the state’s constitutionally mandated flat-rate income tax with one that boosts rates on higher wage earners.
“Ultimately, our chief responsibility to the people of Illinois is to set this state on a path to sustainable growth with an income tax system that is fair,” the billionaire heir to the Hyatt hotel fortune said.
“It is not fair that I pay the same tax rate as a teacher, a child care worker, a police officer or a nurse. And efforts to simply increase the income tax rate across the board fuels further income inequality and kicks the can down the road for our children and grandchildren to solve our ongoing budget issues. The state needs a fair tax, and I am going to be relentless in pursuing one over the next two years,” he said.
Pritzker said his office intended to begin “immediate” discussions with lawmakers on proposed income tax rates under a graduated tax system. He noted the state is faced with a $3.2 billion budget deficit. To offset this and address an ongoing pension shortfall, Pritzker said he would push for new revenue through legalizing marijuana and sports betting and by enacting a tax on insurance companies to help cover state Medicaid costs.
While the governor said he would “reject imposing additional income, retirement and sales taxes on the middle class,” his proposal is built around new taxes that would hit middle-class taxpayers, including a tax on e-cigarettes, an increase in the cigarette tax and a statewide tax on plastic bags similar to the one in place in Chicago.
Pritzker’s proposal estimates $402 million in new revenue from sports betting, legalized marijuana and a new statewide nickel-per-bag tax on plastic bags, a levy that could come on top of Chicago’s 7-cent bag tax.
He is also backing a 32-cent-per-pack increase in the current $1.98-per-pack cigarette tax that would raise an additional $55 million. The cigarette tax was last raised in 2012 when it was 98 cents per pack. Applying the state’s wholesale tobacco tax to e-cigarettes would generate an additional $10 million.
Pritzker would generate an additional $89 million from a higher tax structure on successful video gaming terminals; $75 million by reducing a deduction retailers take for collecting state sales taxes; $94 million by decoupling the state income tax from a federal tax break for foreign income; $175 million from an amnesty-type program for delinquent tax filers; and $6 million by phasing out a private-school scholarship tax credit program enacted as part of a plan to improve public school funding.
Pritzker also would enact an assessment program on managed care insurance organizations to generate $390 million for Medicaid funding.
Those proposals alone would generate nearly $1.3 billion, Pritzker’s budget office anticipates.
On top of that, as part of a multipronged, multiyear effort to deal with the state’s massive unfunded pension liability, Pritzker would save $878 million in the next budget year by extending the state’s required pension payment schedule by seven years.
Together, the governor’s revenue proposals and the lower pension payment would fill nearly $2.2 billion of the state’s $3.2 billion budget hole. The remaining $1 billion would come from a variety of sources, including “natural revenue growth” as a result of a stronger economy and the minimum wage increase that takes effect Jan. 1, and transfers of cash from other state funds, Pritzker spokeswoman Jordan Abudayyeh said in an email.
Critics immediately assailed Pritzker’s proposal on extending the pension payment schedule as a repeat of the policy from past years of kicking the can down the road that increased the pension debt exponentially.
House Republican leader Jim Durkin of Western Springs called the governor’s proposal a return “to the bad years of 20 years ago where we shortchanged pension systems.”
“That is what got us into our problems with the pension systems today,” he said.
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