News

House panel OKs doubling tax rate for wealthiest individuals

Posted April 08, 2008 11:00 pm

Doug Finke

A proposed amendment to the state Constitution that would double the income tax rate for people making $250,000 a year or more cleared its first hurdle Wednesday.

The House State Government Administration voted to send the amendment to the full House. However, the vote was strictly along party lines - Democrats in favor and Republicans against - which could spell trouble for the amendment later.

The House has to approve the amendment by a three-fifths super-majority for it to go to the Senate. That means at least four Republicans will have to join with Democrats to achieve passage.

Rep. Mike Smith, D-Canton, proposed the amendment to raise money for schools and construction projects. He said it also provides tax relief because it increases the standard exemption that can be claimed by Illinois income tax filers.

Now, all people who pay the state's personal income tax have the same 3 percent rate, regardless of income level. Under Smith's plan, those who make $250,000 or more a year would pay 6 percent. About 107,000 of Illinois' 5.6 million income taxpayers would be affected. Smith says the tax hike would raise about $3 billion.

Some of those affected would be business owners who organized their companies under a provision of state law that allows them to pay personal income taxes rather than corporate taxes.

Ronald Bullock of Bison Gear and Engineering in St. Charles said the change will hurt businesses like his.

"We are ready to expand," Bullock said of his 250-employee firm. "If our tax rate is doubled, it could affect our ability to reinvest in the business. I think this would be crippling to our economy. We don't have to stay here in Illinois."

Smith, though, said fewer than 10 percent of small businesses that pay personal rather than corporate income taxes would be affected by the change because most make less than $250,000 a year. His argument didn't convince Republicans on the committee.

"The wealthy are leaving the state in droves," said Rep. Mark Beaubien, R-Barrington Hills. "The only thing the state has going for it is the flat rate tax. You will not get any new business coming into the state."

Democrats, on the other hand, praised Smith for at least starting a discussion about the need for more revenue for state government. Lagging tax revenues have left an estimated $750 million hole in the current budget, and lawmakers have not agreed on a way to fund a public works construction program that most of them insist is a top priority.

Even if Smith's proposed amendment passes the House, it faces a long road before becoming part of the state Constitution. The Senate would also have to approve it by a super-majority before the amendment could get on the Nov. 4 ballot. After that, 60 percent of voters would have to OK it.

Doug Finke can be reached at (217) 788-1527.

Article Categories
News