SPRINGFIELD -- Democratic leaders in the Illlinois General Assembly reached tentative agreement Thursday on a tax deal that would temporarily raise the individual income tax rate from 3 percent to 5.25 percent.

SPRINGFIELD -- Democratic leaders in the Illlinois General Assembly reached tentative agreement Thursday on a tax deal that would temporarily raise the individual income tax rate from 3 percent to 5.25 percent.

  The plan also calls for a $1 per pack increase in the state cigarette tax that would be dedicated to education funding.

  Property owners would get a $325 annual check from the state – instead of the current property tax deduction -- to offset the cost of property taxes.

  The plan calls for borrowing $8.75 billion to pay off old bills. And to prevent the state from sinking into a financial abyss again, lawmakers will be asked to approve bills limiting spending increases and imposing a prohibition on new programs for the next three years.

  Senate President John Cullerton, D-Chicago, warned that the plan still could be “tweaked” before it finally goes before lawmakers for a vote. He outlined it for Senate Democrats Thursday afternoon.

  “The reaction from the caucuses was very positive,” Cullerton said.

 

No done deal

A positive reaction, but not a done deal.

  “I don’t know if (I’m for it) or I’m not,” said Sen. John Sullivan, D-Rushville. “I haven’t made that decision yet. There’s still a lot of unanswered questions.”

  Sen. Dave Koehler, D-Peoria, said he needs to study parts of the plan, but added that Illinois’ debt-ridden state government doesn’t have many options left.

  “If we don’t do something, it’s going to get worse,” Koehler said.

  The concern is in the House and what lawmakers there might do with the tax plan. In 2009, the Senate passed a tax hike bill of similar size, but the House never voted on it.

  Minority lawmakers in both the House and Senate also demanded that a tax hike plan also provide additional money for education and property tax relief, rather than being used exclusively for paying off old bills. Gov. Pat Quinn outlined the plan for members of the Black Caucus Thursday.

“He has met both of those goals with us,” said Rep. Will Davis, D-Homewood, chairman of the Black Caucus.

 

GOP support unclear

The question is also how much, if any, Republican support there will be for the plan. Until now at least, House Speaker Michael Madigan, D-Chicago, has insisted that Republican votes be put on any tax hike plan. Republicans so far have refused.

The state is in the hole and sinking with a deficit that some are estimating will hit $17 billion. Vendors are waiting months to be paid what they are owed.

The borrowing provision means “people will get paid the money that is owed to them,” Cullerton said. “It will help the economy when we infuse that amount of money back into the economy.”

Of the entire 2.25 percentage point increase proposed in the income tax rate, 1.5 percent would also be devoted to paying down debt. The plan calls for one-half of 1 percent to be used to pay off bonds over the next 14 years and the remaining one-quarter of 1 percent devoted to property tax rebate checks.

Local governments normally get a cut of the state income tax, but they would not share in revenue from the tax increase. Cullerton said they would not lose any of the portion they now receive.

Raising the cigarette tax by $1 per pack is expected to bring in $377 million. All of that money would be devoted to education spending.

 

Property tax break

If approved, this is the final year that property owners will use the property tax deduction currently on their state income tax return. Instead, in the future each property owner would receive a check from the state for $325.

“About 80 percent of the people who pay property taxes would get a greater break,” Cullerton said.

The plan would limit spending increases to 1 percent per year. Combined with the proposed moratorium on new programs, Cullerton said, the proposal demonstrates “we are definitely looking for the long term,” Cullerton said.

Lawmakers have approved a temporary income tax increase in the past, only to later vote to make it permanent. Cullerton conceded that could happen again, but he noted that the taxes called for in this plan would all expire just after the next election for governor.

When the same situation existed in the early 90s, Jim Edgar was elected governor on a platform of making the temporary tax permanent.

 

Doug Finke can be reached at (217) 788-1527.

 

Components of the proposed state bailout plan

*An increase in the state income tax rate on individuals from the current 3 percent to 5.25 percent, raising $6 billion a year. Most of the increase would expire after four years. At the end of that time, the permanent individual tax rate would be 3.75 percent.

*Local governments would not get their usual cut from the increase.

*An increase in the corporate income tax rate from the current 4.8 percent to 8.4 percent, raising $1 billion a year. That increase also would drop after four years.

*An increase in the state cigarette tax by $1 per pack, raising $377 million. Those funds would l be devoted to education funding.

*Borrowing $8.5 billion to eliminate the state’s backlog of bills.

*Paying all property owners a $325 check from the state each year as a credit against property taxes. The rebate would be permanent. The current deduction for property taxes on the state income tax return would be eliminated.

*Instituting a three-year moratorium on new state programs. Spending increases would be capped at 1 percent per year for three years.