Illinois Senate starts process for graduated income tax

SPRINGFIELD, Ill. (AP) - The Illinois Senate on Wednesday began a lengthy process to overhaul the state's income-tax structure by approving language for a constitutional amendment to establish a graduated income tax that hits the wealthy at a steeper rate.

The 40-19 vote, which moves the proposal to the House where it must also win three-fifths majority approval before appearing on voters' ballots in fall 2020, was followed quickly by legislation to set the rates for the revamped system. A graduated income tax is Gov. J.B. Pritzker's top campaign promise. He says it would generate $3 billion in additional annual revenue for the state mired in debt, while claiming that 97 percent of taxpayers would pay the same as they do now or less.

Democrat Pritzker calls it the "fair tax," a nod to decades of derision for the flat rate, seen as regressive because it takes a greater share of income from low-wage earners than those at the high-salary end of the scale.

"If you are saying the flat tax is a good idea, you are protecting the uber-rich and not the middle class," said Sen. Don Harmon, an Oak Park Democrat sponsoring the amendment. "You can't raise taxes on anyone without raising taxes on everyone, and that's protection for the richest among us."

The amendment would supersede language in the state Constitutional requiring a flat-rate income tax. The 1971 document locked in the structure for the state's first income tax, adopted two years earlier at 2.5 percent. It currently stands at 4.95 percent.

But the amendment would only allow for a progressive structure, not establish rates. Those came in legislation Wednesday from Sen. Toi Hutchinson, a Democrat from Olympia Fields, approved 36-22.

But its rates, starting at 4.75 percent for those earning up to $10,000 and topping out at 7.99 percent for single filers making $750,000 or more, are different from the ones Pritzker proposed in March . He suggested a top rate of 7.95 percent for incomes over $1 million, but the Senate version hikes the rate for revenue's sake and lowered the income threshold for single filers to make it fairer for joint filers facing the "marriage penalty."

The corporate income tax would also increase from 7 percent under Pritzker's plan to 7.99 percent.

Pritzker's office did not respond to a request for comment on the change. In fact, there was no statement from the governor, who typically weighs in when one of his major initiatives gets legislative approval.

But Senate Republicans howled. Mattoon GOP Sen. Dale Righter said a graduated income tax makes future tax hikes easier, noting that the top rate in this proposal has already increased from Pritzker's suggested 7.95 percent to Hutchinson's 7.99 percent before it was even presented to lawmakers.

"It makes it more likely that a government is going to say, 'Let's just ask the people who have a lot of money to give a little more money," Righter said, "which makes it easier not to do the other things" such as reducing spending.

Hutchinson recounted the state's slashed spending in areas such as higher education and said it's "absolutely amazing" that anyone would want to continue seeing those results with a structure established in 1969.

"It's not working now for our students. It's not working just fine for our working poor ...," Hutchinson said. "We're not making the proper investment in what we said we would invest in to bolster and grow the state."

The Senate also approved legislation designed to help the transition to the new tax system by proposing to abolish estate taxes , dubbed the "death tax" which hit the wealthy hardest, and to prevent school districts from hiking property taxes if the state lives up to certain funding promises.