Earlier this month, Illinois Governor Pat Quinn signed a measure into law that increased the income tax for individuals and the corporate tax in Illinois, as the state faces a budget deficit of more than $13 billion.
On Jan. 12, the tax increase barely passed in the Illinois General Assembly with the votes being 60 to 57 in the House and 30 to 29 in the Senate. The income tax of Illinois currently stands at 5 percent—an increase of 66 percent—from a previous 3 percent and the tax for businesses is 7 percent—an increase of 46 percent—from 4.8 percent.
Assistant Professor of Economics Jonathan Powers, whose specialty is in microeconomics, commented on the tax increase, saying that Illinois politicians faced a tough choice in order to get the state’s finances in order: raise taxes or cut services. Powers gave an example of these services such as grants from the Monetary Award Program (MAP) to help Illinois residents pay for college.
“Certainly, we’ve seen within the last couple of years with the MAP grants—whether it be the question about the MAP grants or other important services that the state provides, those are things that are important to many of the citizens so that made cutting spending any further very, very difficult. Raising taxes was the least bad alternative,” he said.
As a comparison to Illinois’ flat income tax rate, in which every resident pays the same percentage rate, Hawaii has a progressive income tax in which the lowest paid rate is 1.4 percent and highest is 11 percent.
Powers said, “Personally, I’d be in favor of a more progressive state tax system where instead of having a flat rate—now five percent—that we’d see a higher rate on higher incomes as a way to get tax revenue.”
Addressing the concerns about the income tax increase, he said, “State income taxes are small relative to the federal income tax and federal payroll taxes and other income taxes that we pay. While it’s reported as 66 percent, it’s not like there’s going to be a huge chunk taken out of my paycheck.”
None of the Republicans of the Illinois legislature voted in favor of the tax measure. Republicans filed to repeal the tax increase the day after the measure was passed, with state Rep. Dwight Kay sending a press release saying, “The tax increase is bad for Illinois families and bad for business.”
Professor of Economics Steve Cohn, whose specialty is in macroeconomics, said, “If we take the money and spend it on things like schools, I think it’ll help in terms of jobs because what really matters to people is what are you getting with the money … if we use the money for things like—what you call in general investment—for schools, then I think there’s no question in my mind that we will be more attractive for a place to do business if the schools are good.”
Sarah Juist, senior and resident of Fulton, Ill., said that because of Illinois’ budget deficit, a tax increase was “bound to happen sooner or later.”
“With the increases in spending, there should have been increases in revenue coming in but there weren’t because our Governor was an idiot. In order to keep services at the level that they’re at or even in a decreased level at this point, we have to increase taxes, that’s just the way it is. As much as it sucks, it’s necessary,” she added.
Powers said, “[The tax increase] is one of the trade-offs that the state faces. It will be an additional burden for some, but the question is then if we weren’t increasing taxes, what services would be cut? And that would also create hardships and would probably have a greater effect on those less well off in the state.”