(The Center Square) – A credit rating agency suggested Illinois could make taxpayers pay more to shore up its budget, a mantra a Republican state lawmaker said was tiring.
Illinois led other states as an example of voters rejecting tax increases, and the impacts on the state’s finances.
In a report about state ballot tax initiatives and the mixed outcomes across the country, Fitch Ratings said Illinois’ was a notable example.
“Illinois voters rejected a graduated income tax, narrowing the state's fiscal options,” according to the report. “This would have replaced the flat tax provided for in the state constitution and would have generated an estimated $1.3 billion in state tax revenue in the second half of the current fiscal year.”
Illinois lawmakers in May passed the state’s largest spending plan to date and relied on $5 billion in borrowing and passage of the progressive income tax for an additional $1.3 billion. Those revenues have not materialized more than five months into the fiscal year.
“Borrowing is already included in the enacted budget, but additional debt without mitigating structural measures could compound pressures on Illinois’ IDR of ’BBB-’ with a Negative Rating Outlook,” Fitch said.
“Budget cuts are likely,” Fitch said, “but the state may also raise revenues, such as choosing to increase the flat income tax rate.”
Lt. Gov. Juliana Stratton suggested as much in September. She said if the progressive tax fails, lawmakers would be “forced” to consider raising the flat tax by 20 percent.
“I’m tired of it being more borrowing and more taxes,” state Rep. Mark Batinick, R-Plainfield, said.
“We have a systemic problem in government, and that’s where we need to start,” Batinick said. “There’s fat marbled through government. It’s just not one easy thing to look at and not something you can just lump off.”
He said policy changes in Illinois are needed to promote economic growth and “hard work” to make government efficient.
“We need to start addressing making government more efficient and we need to start addressing attracting more people and businesses to the state,” Batinick said. “Because if it’s just about raising taxes, it's an artificial short-term high and then it pushes people out of the state, and then you’re always chasing that high.”
State Rep. Mike Zalewski, D-Riverside, is the chairman of the House Revenue and Finance Committee. He said they’re collecting more data.
“We had a productive briefing with [Governor’s Office of Management and Budget], I thought we heard some good green shoots on revenue,” Zalewski said. “I think green shoots these days is ‘not as bad as it could have been.’”
“We’re going to see how things progress and how tax receipts come at the end of the year and then I think as a legislature we’ll get together with the Senate and see if there’s anything that runs afoul of what we thought we were going to be facing in may,” he added
Zalewski said he wasn’t ready to pronounce any kind of income tax increase.
“We have our work cut out for us,” Zalewski said. “To make any grand pronouncements right now seems ill-advised.”
Fitch’s report Wednesday also highlighted California voters' rejection of a proposal that would have increased local property taxes up to $12.5 billion a year. In Colorado, Fitch said voters approved reducing that state’s income tax by nearly $170 million. Arizona voters approved a tax increase on higher earners to pay for schools and teachers' salaries.
Fitch also noted Arkansas increased sales taxes by half a percentage point, while Oregon voters tacked on another $2 per pack of cigarettes and 65 percent tax on e-cigarettes.