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The State of Illinois: Financial Challenges and Tax Reforms

Explore the financial challenges facing Illinois: budget deficits, tax increases, record population loss, pension crises. Discover proposed tax reforms and their impacts on state revenue.

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The State of Illinois: Financial Challenges and Tax Reforms

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  1. Chicago Paint & Coatings Association February 17, 2015

  2. State of Illinois • $7 billion + income tax increase in 2011 – Starts to expire on January 1, 2015 • @$7 billion Pension Payment - Current Fiscal Year • $5.124 billion backlog of bills (as of 2/11/15) • $100 billion + shortfall in state-funded pensions (teachers, state, university, etc. ) • Governor proposing serious cuts in all GRF programs to alleviate debt

  3. Loss of People, Revenue • Since 1995– Illinois has lost 366,616 tax-paying households (806,054 people) • Loss of $26.3 billion in taxable revenue • 2014 – Illinois is #2 in the nation again where more people are leaving than arriving. #1 in 2011, #2 in 2012 • More people fled Illinois than were born here in 2014, sustaining a record net loss of 95,000 people • Illinois has dropped from #6 in per capita income in 1998 to #15 in 2013 • Illinois’ unemployment rate is 6.4%, higher than the national unemployment rate of 5.6%. (Dec. 2014)

  4. Largest Costs • Structural Imbalance – State Pensions, Medicaid, K-12 Education • Pensions - Over $7 billion and Climbing • Medicaid - $7.3 billion • Education - $8.95 billion – flat through 2015

  5. Taxes & Spending - Partial expiration of 2011 income tax increase - decreases personal income tax rates to 3.75% from 5% corporate income tax to 7.75% from 9.5%, costing the state over $2 billion just for the current fiscal year. - Current Budget & Revenues: Lawmakers approved $35.7 billion budget Revenues projected to only be $34.49 billion Leaving $1.2 billion deficit Since Illinois has a balanced budget requirement, this deficit was made up by $650 million in borrowing from other funds and $380 million in postponed bills, and other delayed payments, all of which must be paid back July 1, 2015.

  6. Largest State Tax Exemptions – as of 4/1/14 • $2.23 billion Retirement & Social Sec. (I) • $1.64 billion Food, Drug, Medical (S) • $1.11 Billion Standard Deduction (I) • $548 million Property Tax Credit (I) • $333 million Tax-Exempt Organizations (S) • $282 million Exemption from Trade-Ins (S) • $267 million Farm Chemical Exemption (S)

  7. Largest Business Tax Exemptions • $267 million Farm Chemical Exemption (S) • $204 million Manufacturing Machinery Exemp. (S) • $146 million Gasohol Discount (S) • $133 million Biodiesel Discount & Exemption (S) • $125 million Retailers’ Discount (S) • $114 million Non Motor Vehicle Use (MF) 88% of all Exemptions are contained on these two pages

  8. Other Tax Incentives Targeted • Return to 3 factor income tax apportionment for non-service companies                     $70 million • Repeal Research & Development (R & D) Tax Credit                                                    $30.6 million • Eliminate the Manufacturers’ Purchase Credit (MPC)                                                    $34.5 million • Decouple from federal accelerated depreciation (one-time revenue increase)              $100 million • Include Puerto Rico and outer continental shelf in definition of U.S.                              $30 million • Require income tax withholding on gaming winnings over $1000 from non-residents    $4 million • Decouple from 2004 federal tax legislation (qualified production activities deduction) $53 million • Repeal deduction for foreign and domestic dividends received by corporations             $90 million • End deduction for company owned life insurance                                                           $9 million • Tax canned software                                                                                                        $65 million • Extend the insurance tax to industrial insurance                                                              $15 million • Repeal exemption for fuel transported to out of state destinations (Stealth Gas Tax)    $45-90 million • Limit retailers sales tax discount                                                                                      $125 million

  9. Challenges Going Forward Illinois – Financial Problems Continue • $9 Billion Budget Deficit – Including $5.124 Billion in Backlog of Unpaid Bills • 2011 Tax Increase Started to Expire Jan. 1, 2015, reducing revenue by $2.1 Billion in the Current Fiscal Year and an Additional $2.7 Billion in the next Fiscal Year starting July 1. Will Tax Increase be Extended? If so, at What Rate? • Pension Reforms Challenged in Court. Constitutional? If Not, Back to Drawing Board. Over $7 Billion in Pension Payments due this Year.

  10. Other Current & Future Issues • Loss of Revenue - Income Tax; Possible Service Taxes • Clean Power Procurement – Electricity Costs • Fracking/Shale Gas/Price of Natural Gas • Chemical Regulation at State Level • Chemical Bans – Triclosan, BPA, Flame Retardants, Coal Tar Sealers, Polystyrene Containers, etc. • Asian Carp/Chicago Waterway System/Mississippi River • Illinois Pollution Control Board Opening

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