The state’s financial condition is dire, but it’s not beyond salvation.
Here’s the solution, according to Ralph Martire, director of the Center for Tax and Budget Accountability: Restore the 5 percent income tax (worth $3 billion), expand the sales tax to take in consumer services ($2 billion to $2.5 billion), tax some retirement income ($1.2 billion) and re-amortize the state’s pension debt, so it gets paid off consistently, but over a longer time period.
“Those steps completely eliminate the state’s structural deficit, allow it to pay all of its past due bills within two years, and would in fact allow the state to make its pension payments, and moving forward put another $4.5 billion into public education,” he said.
Meanwhile, he suggested that the state can create a progressive income tax by raising the rate to 5.5 or 5.75 percent, and giving low- and middle-income taxpayers a refundable tax credit. Refundable means that a taxpayer’s obligation might be less than zero, in which case they would get a check from the Department of Revenue.
The Illinois Constitution requires income tax to be charged at the same rate for everyone, and Martire says changing that is a tall order, but he says the current 3.75 percent flat rate does not recognize the reality of an economy in which all the income gains over the last 35 years have gone to the top 1 percent of earners.