Illinois tax drop means more cash for taxpayers; huge deficit for state budget

Illinois taxpayers will have a little more spending money next year.

With a temporary income-tax increase expiring Wednesday, a typical family of four with an income of $50,000 will pay $930 less in 2015, according to the Illinois Department of Revenue.

That is, if the reduction sticks.

The drop in the tax rate means a steep decline in revenue for the state. The state faces a $2 billion deficit through the end of the fiscal year in June. The individual rate drops from 5 percent to 3.75 percent, while the corporate income tax rate declines from 7 percent to 5.25 percent.

Incoming Republican Gov. Bruce Rauner has a stiff challenge if he's to allow the surcharge to be reduced, as he favors. The architect of the increase — now vanquished Democratic Gov. Pat Quinn — campaigned on making the hike permanent, and the Democratic-controlled Legislature planned on it when it passed this year's budget.

Rauner might need to take a multiyear approach to achieve what he wants with the budget, suggested a House Republican. It's something Rauner himself hints at with his plan to slice the tax rate to its pre-2011 level of 3 percent in four years. He would support tax changes to encourage business growth and perhaps a broadened sales tax.

And the state could face an ever bigger deficit than previously anticipated.

Rauner was steamed this month when he learned state agencies are seeking an additional $760 million in supplemental funding for the remainder of the year. He contends the Quinn administration low-balled anticipated spending.

"This type of fundamentally dishonest budgeting is the true cause of Illinois' massive budget hole," Rauner spokesman Mike Schrimpf said Monday.

Majority Democrats in the Legislature have told Rauner the state can't meet its obligations if the tax surcharge expires,

"I do not think we can," said Rep. Barbara Flynn Currie of Chicago, the Democrats' No. 2 in the House. "Whether that's the only source of revenue, that's another question entirely."

The surcharge produced some heady numbers. According to the General Assembly's bipartisan budget analysts, it's produced nearly $32 billion — during a full year, an average of $7.8 billion. It was sold as a way to catch up on underfunded pension obligations and pay overdue bills; Democrats and the GOP disagree on how much ground was gained.

Senate President John Cullerton, a Chicago Democrat, wants to give Rauner a chance to make his financial case. But he wants the newcomer to "show his work when it comes to how we can follow up on our commitments to education and human services while at the same time rolling back the tax increase," spokeswoman Rikeesha Phelon said.

The task of digging out without the help of additional tax revenue is possible, but it won't be painless, said Rep. David Harris of Arlington Heights, the ranking Republican on the House Revenue and Finance Committee. He suggests whittling away at it over several years.

"You're not going to pass a multiyear budget, but one could lay out a strategic, multiyear plan of how we get back to zero," Harris said.

Senate GOP budget expert Matt Murphy, of Palatine, says it's up to Democrats in the Legislature to cooperate and not just sling mud.

"To create this impression," Murphy said, "that it's incumbent upon Gov. Rauner to grovel to the speaker and the Senate president to help solve a budget crisis that they created ... is absurd."

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Contact John O'Connor at https://twitter.com/apoconnor