Illinois House approves 66% hike in state income tax

Rejecting pleas that Illinois is headed down a destructive path, the Illinois House has approved one of the largest tax hikes in state history, boosting the individual income tax from 3% to 5%, and the corporate rate from 4.8% to 7%.

The vote was a party-line 60-57 -- the bare majority needed for passage. The tax hikes are slightly lower than in an earlier version of the bill floated on Friday.

The action by the lame-duck House sent the bill to the Senate, which is expected to approve it and send it to Gov. Pat Quinn for his signature before the new Legislature takes office at noon on Wednesday.

Democrats, led by Majority Leader Barbara Flynn Currie, D-Chicago, argued that the increase is needed to dig the state out of a budget hole of as much as $15 billion. "It's D-Day for everyone," she declared. "We are in crisis."

Without the money, not only will Illinois' ability to borrow be jeopardized but an uncontrollable cascade of financial woes could break out through the state, she and other Democrats warned.

Much of the proceeds would be used to issue bonds to pay overdue state bills. As a result, if the bill is followed in future years, the individual rate will drop to 4% in four years and 3.5% in 2024, with the corporate levy dropping in similar fashion.

But Republicans focused on the fact that, though the bill also includes spending caps, state spending would still rise at least from $36.8 billion in fiscal 2012 to $39.1 billion in fiscal 2015. They unanimously voted no.

"We'll be right back where we are now," said Rep. David Reis, R-Willow Hill.

The corporate hike, combined with the corporate personal property replacement tax, would give Illinois the third highest levy on employers in the country, said Rep. Ed Sullivan, R- Mundelein.

"Only in Illinois would we say we are going to fix our problems by spending our way out of debt," he continued. "We're going to come back (eventually) in 10 times worse shape."

Business groups particularly complained about a clause in the bill that would prevent companies from carrying forward recent losses against current taxes. The carry-loss provision would be suspended for four years, after which such offsets again would be allowed.