The Illinois State Senate tabulates its vote on a 66 percent income tax hike. (Credit: CBS)
UPDATED 01/12/11 10:43 a.m.
SPRINGFIELD, Ill. (CBS) – By a single vote, Illinois lawmakers approved a 66 percent increase to the personal income tax overnight, and soon, your paycheck will be shrinking.
But as CBS 2 Chief Correspondent Jay Levine reports, Democratic state lawmakers have said the tax hike is necessary to get the state’s outstanding bills paid. Lawmakers also say cuts and spending limits will be part of the plan.
Around 1 a.m. Wednesday, the Illinois Senate approved the tax hike by a vote of 30 to 29. The Illinois House approved the tax hike on Tuesday evening, by a vote of 60 to 57.
Gov. Pat Quinn still must sign the bill into law, but he has supported a tax hike all along, although this plan is double what he originally said he’d support.
But Quinn agreed to the deal in closed-door meetings with top Democratic lawmakers this week and he was on the Senate floor when the vote was taken.
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The hike increases the state’s personal income tax rate from 3 percent to 5 percent.
In real numbers, if your gross income is $50,000 a year, your state income taxes will rise from $1,500 to $2,500 a year.
As CBS 2′s Susanna Song reports, the tax hike wasn’t sitting well with Chicago residents Wednesday morning. She spoke with dozens of commuters Wednesday and none of them supported the tax increase.
“I don’t like that. I’m already losing enough money,” one woman said.
“My taxes are high, so I just really … I’m really struggling as is,” another woman said.
The hike will also boost the corporate income tax rate by nearly 50 percent, from 4.8 percent to 7 percent. In addition to the corporate income tax, many businesses in Illinois pay a “Personal Property Replacement Tax” of 2.5 percent of income, bumping their corporate tax rate to 9.5 percent.
Democrats said the tax hike will help plug a $15 billion budget hole.
“We’re going to pay bills on time, and that’s a huge change,” said state Senate President John Cullerton (D-Ill.)
Cullerton emphasized that the tax hike is only one portion of a solution to the state’s budget crisis.
“The taxes are going to not borrow anymore; to make our pension payments without borrowing our pension payments; to make up for the loss in federal revenues. They’re not going for any new programs or any new spending,” Cullerton said. “There’s going to have to be further cuts, even with this tax.”
The tax hike will be coupled with strict 2 percent limits on spending growth. If officials spend above those limits, the tax increase will automatically be canceled. The plan’s supporters warned that rising pension and health care costs probably will eat up all the spending allowed by the caps, forcing cuts in other areas of government.
But Republican critics say the hike will harm middle class families.
“This means hundreds of dollars for Illinois families that they’ll be paying more to the State of Illinois, and the irony is the money they have been sending to the state has been so grossly mismanaged for the last decade,” said state Senate Republican Leader Christine Radogno (R-Lemont.)
The tax hike is not set up to be permanent. After four years, it drops to 4 percent.
“This is always tough to raise taxes,” Cullerton said. “We’ve done it before under Republican governors, and when there’s been big recessions, and that’s what we responded to.”
The higher taxes will generate about $6.8 billion a year.
The tax hike followed fiery rhetoric on both sides of the Senate aisle.
“We don’t have a better choice today!” state Sen. David Miller (D-Dolton) said in a raised voice. “Everybody wants to go to heaven, but nobody wants to die!”
Miller, an unsuccessful candidate for state comptroller last year, later collapsed while watching the Senate debate, although he seemed awake and alert when paramedics responded and took him for further treatment.
Critics have expressed doubt about whether the tax hike will really solve the state’s budget problem. Earlier this week, the Better Government Association called the move to pass a tax hike plan “closed-door backroom dealing,” and bemoaned the lack of public hearings or answers to questions.
Radogno also said she believes lawmakers have failed to address the factors that are contributing to the ballooning deficit.
“That’s the big lack in this whole bill. No one’s addressed the spending yet,” Radogno said. “I don’t just mean spending at the state level, but there’s so much work that this body could do to make Illinois more efficient.”
Republicans also fundamentally reject the idea of raising taxes after years of spending growth.
“We’re saying to the people of Illinois, ‘For eight years we’ve overspent, now we’re going to make it your problem,”‘ said Rep. Roger Eddy (R-Hutsonville.) “We’re making up for our mistakes on your back.”
LISTEN: Newsradio 780′s Bernie Tafoya has taxpayers’ reactions
Other pieces of the budget plan failed.
Lawmakers rejected a $1-a-pack increase in cigarette taxes, which would have provided money for schools. They also blocked a plan to borrow $8.7 billion to pay off overdue bills, which means long-suffering businesses and social-service agencies won’t get their money anytime soon.
Quinn has been ducking reporters for the past week, but he is expected to have more to say on the tax hike on Wednesday.
(TM and © Copyright 2011 CBS Radio Inc. and its relevant subsidiaries. CBS Radio and EYE Logo TM and Copyright 2010 CBS Broadcasting Inc. Used under license. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed. The Associated Press contributed to this report.)
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