Illinois Advances Pritzker's Plan to Hike Taxes on Richest

(Bloomberg) -- Illinois lawmakers moved a step closer to hiking taxes on the state’s highest-earners, the centerpiece of Governor J.B. Pritzker’s plan to stabilize the debt-ravaged finances of the worst-rated U.S. state.

The Senate voted Wednesday in favor of a constitutional amendment that would end the requirement that all taxpayers pay the same tax rate regardless of income. The bill now moves to the House of Representatives, where it needs to secure three-fifths approval before it can go before voters in the next general election in 2020. Changing the rates would provide an influx of revenue to help Illinois deal with the massive pension-fund shortfall and budget deficits that have left the government with a near-junk bond rating.

“This is the next step in a more than decades-long effort to modernize our tax code,’’ said Senator Don Harmon, a Democrat, before the vote, referring to the change as moving to a “fair tax.’’

Pritzker, whose net worth is estimated at $3.3 billion, is joining fellow Democrats in a handful of states that are calling for higher taxes on the rich. The push echos rhetoric coming from the party ahead of 2020 presidential nominations as candidates tap into public anger over an economy that’s delivered big gains to the wealthy while others struggle to keep up.

Illinois’s tax plans would bring in more than $3 billion of revenue annually, according to Pritzker’s estimates, and leave the vast majority of residents unaffected. The influx of cash would help a state struggling with chronic budget deficits and escalating bills from an employee retirement system that has $134 billion less than it needs to cover all the benefits that have been promised.

The Illinois Senate on Wednesday also approved legislation that would set the new tax rates if the constitutional amendment is enacted. The current income levy of 4.95 percent would be increased to 7.99 percent on single filers making more than $750,000 and joint filers making more than $1 million, with slightly lower rates for those making more than $250,000, according to the Senate bill. The rates would be effective Jan. 1, 2021, if the amendment is approved by the House and voters.

On Wednesday, the Senate also approved a repeal of the so-called "death tax," or levy on inherited estates, as well as property tax relief, if the tax plan goes through.

Republicans, who are a minority in the legislature, opposed doing away with the flat income-tax rate.

“To solve our problems, we don’t need to raise tax rates,’’ Senate Minority Leader Bill Brady, a Republican, said before the Senate vote. “What we need to do is create jobs.’’

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