Lawmakers wrongly assumed voters would approve a progressive tax. Now the state is deep in the red, and rising crime is worsening the exodus of taxpayers.
Faced with a $4 billion budget shortfall, Gov. J. B. Pritzker of Illinois proposes to exempt the state from a federal CARES Act tax provision intended to help businesses recover from the pandemic and government-mandated lockdowns.
If the exemption goes into effect, businesses in Illinois will not be able to deduct all their losses in the 2020 tax year but would be forced to spread them over several years increasing their tax liability in the short term, the Chicago Tribune reports.
Republicans and some Democrats condemned the plan, saying it would put further pressure on already-struggling small businesses in the state. Some Republicans objected to the process, calling it “a midnight tax hike by a lame duck legislature.”
“It’s often been said that no Illinoisan’s life, liberty, or property is safe when the legislature is in session,” House Republican Leader Jim Durkin told WGN News.
The budget shortfall was created in May when the legislature approved a budget that incorporated a new, progressive income tax. The change in tax policy would have raised rates on higher-income individuals and families, increasing revenue for the struggling state.
The $42 billion budget the legislature passed in May assumed both the new income tax and federal assistance through another COVID relief bill, The Center Square reports. The voters rejected the income tax, and the federal assistance has yet to arrive, leaving the gaping budget hole.
In December, Pritzker announced $711 million in budget reductions through layoffs and furloughs of government workers to address the financial gap.
“We’ve put forward proposals for what needs to be trimmed from state government,” Pritzker told ABC 7 News. “They’re hard. They’re painful.”
Facing the prospect of thousands of state workers being furloughed, the public employees’ unions protested the governor’s plan and refused to share any of the burden in closing the deficit.
“We don’t want to see anybody lose a job or even lose an hour on a paycheck,” said Illinois AFL-CIO President Tim Drea.
Asked recently about those planned personnel cuts, Pritzker did not indicate his administration had begun the promised actions.
“I asked Gov. Pritzker at one point to provide a list of the cuts that he had stated that he had directed his state agencies to do back in 2019, the 6.5 percent cuts, and still to this day we have not heard from him,” Durkin said.
Durkin says the Republicans have not had a response from the governor on how he plans to deal with the pension shortfalls, either, The Center Square reports.
More budgetary difficulties are ahead for states like Illinois that have low financial ratings. Governments with poor financial ratings have fewer options to exercise in trying to balance their budgets.
“Released earlier this month, Fitch Ratings predicted local municipalities in Illinois and New Jersey will see especially pronounced budget pressure in 2021,” writes Cole Lauterbach for The Center Square.
Illinois is also known for imposing expensive unfunded mandates on local governments.
“The state of Illinois has a long history of writing checks and then forcing local municipalities to cash them,” Rockford Mayor Tom McNamara told The Center Square.
In 2019, Illinois led the nation in migration out of state, Fox Business News reported. Worsening the tax implications, the state’s highest outbound migration numbers were among people at higher income levels. In 2020, Illinois tied with New York for the most outbound migration, United Van Lines reports. Even without the progressive state income tax, high earners have been fleeing Illinois in record numbers because the overall tax burden is so high.
“I had a hard time moving, but it was financially disadvantageous to stay,” lifelong Illinois resident Mary Doherty told Budget and Tax News. Mary and her husband, Brian, recently moved from Chicago to Scottsdale, Arizona.
“The taxes for our condominium in Chicago were $8,508 per year,” Doherty said. “For about the same size place in Scottsdale, we are paying $1,800. The crime is off the charts in Chicago, and we pay way too much money to live the way we are living.”
Chris Oehlerking is a lifelong Illinois resident, and generations of his family have made Illinois their home all the way back to the 1850s. He and his wife never thought they would leave Illinois, but a tripling of their property taxes prompted them to do what was previously unthinkable.
“Financially, it was impossible to stay,” Oehlerking told Budget and Tax News. “If Illinois had the same fiscal responsibility of Tennessee, I would still be there. In 2006, our property taxes were $6,000. In 2019, they were $18,000. That is not sustainable. Home values are not rising at the rate they are taxing you for.
“As soon as property taxes hit $18,000, we said, ‘That’s it,’ and put the house on the market,” Oehlerking said.
Illinois’ unfunded pension liabilities for former government workers are a source of great concern for residents. The state Supreme Court has ruled the state cannot change the pensions.
“I just don’t understand why they can’t just the freeze pensions plans,” Oehlerking said. “My company froze our pension plan. They realized it was costing too much money, so they didn’t take it away, but they froze it. I feel bad for police, fire [department retirees], and teachers. I know they worked under a deal, but I had to make changes. I have a budget, but the state doesn’t.”
“I was emotionally distraught that we had to sell our place,” Doherty said. “There are so many great things about Chicago—the arts, the music, the restaurants, the shopping—and we had season tickets for Cubs games. For me, it was the three C’s; crime, cost and cold. Chicago will always be near and dear to my heart.”