(The Center Square) – Gov. J.B. Pritzker is proposing tax increases on businesses just months after they led the charge against his progressive income tax initiative.
Pritzker wants lawmakers’ help in passing a budget that he said “removes corporate loopholes” by clawing nearly $1 billion from Illinois businesses a year after thousands were closed by his pandemic-induced executive orders.
Pritzker gave his budget address Wednesday afternoon. Due to COVID-19 concerns, the governor presented virtually from the Illinois State Fairgrounds in Springfield.
“I had bolder plans for our state budget than what I am going to present to you today. It would be a lie to suggest otherwise,” he said. “But as all our families have had to make hard choices over the last year, so too does state government. And right now, we need to pass a balanced budget that finds the right equilibrium between tightening our belts and preventing more hardships for Illinoisans already carrying a heavy load.”
His $41.6 billion budget proposal includes no new income tax hikes, something he warned would happen if the state didn’t scrap its flat tax protection in the Illinois Constitution.
In revising the revenue forecast up and erasing the budget gap with extended borrowing, Pritzker now estimates the state will have a budget surplus.
“It reflects $400 million in additional cuts to appropriations, a hiring freeze, flat operational spending, full required pension payments, and the closure of unaffordable corporate loopholes. All in all, it reduces spending to meet projected revenues,” he said.
The state was facing a $3.9 billion budget shortfall in November. Pritzker said he has closed that gap. They borrowed from the federal Municipal Liquidity Facility fund, Illinois’ treasury funds, and other accounts controlled by the state comptroller. He said a November estimate was conservative and the state plans to pay what’s due in federal loan repayments early. Pritzker expects to end the current fiscal year with a $77 million surplus and increase that to $120 million if lawmakers follow his lead.
Illinois’ Constitution requires lawmakers to enact a balanced budget, but that requirement is often sidestepped with overly-optimistic revenue estimates.
Pritzker’s plan to remove about $932 million in business tax incentives comes three months after the failure of his proposed constitutional amendment for a graduated income tax failed at the ballot box. Illinois’ business community led the charge against it.
The largest among the proposed clawbacks is a cap on corporate loss deductions at $100,000 per year. That would mean businesses looking to deduct operating losses from record low years caused by the pandemic would be limited. The change, which requires legislative approval, would raise an estimated $314 million in new tax revenue.
Pritzker is also proposing to decouple from the federal tax code’s new rule for 100% bonus appreciation, which allows businesses to immediately write off the cost of most depreciable business assets compared to incrementally over the life of the item. That would raise an estimated $214 million.
"The Illinois Chamber is opposed to the massive tax increase proposed by the Governor’s budget plan under the guise of ‘closing corporate loopholes,’” said Todd Maisch, CEO of the Illinois Chamber of Commerce. “We understand that the state has fiscal problems to address, however, the Governor’s plan will have a long-term negative impact on job creation and tax revenues for the state as it produces an unfair increase on taxpayers after they resoundingly defeated the graduated income tax.”
Maisch said the proposal would not only expand what will get taxed, but will also reduce tax credits for key sectors of the state’s economy.
The proposal also asks lawmakers to flip on a deal Pritzker made with Republicans early in his term. In addition to providing business tax incentives, the Blue Collar Jobs Act slowly phased out Illinois’ franchise tax by 2024. Pritzker proposes to reverse the phaseout, netting the state $30 million.
Pritzker’s office said additional federal stimulus under consideration is not reflected in his proposal. The previous state budget relied on federal funds.