Living in the Prairie State just got a whole lot more expensive. Facing a gaping hole in the budget, Illinois lawmakers have scrambled to find a way to pay the bills. Their solution? A significant tax hike.
The Senate and the House have approved tax increases across the board for the states. Personal income tax rates will jump 66% from 3% to 5%. Corporations are not spared either with corporate income tax rates rising more than 45% from 4.8% to 7%.
And the increases aren’t over yet. The House has yet to vote on a massive increase on tobacco. The price could jump to 200% of the original tax – from 98 cents to $1.99 per pack. (Note: If you live in Illinois, that “stop smoking” resolution might be more attractive now.)
But don’t get too comfortable or too smug if you live outside of the state. Many states are considering tax increases or the imposition of new taxes to plug holes in budgets. Federal funding cuts and lower tax revenues in a down economy are forcing many states to look at alternatives. Alternatives is, of course, another word for tax increases.
I live in Illinois and I believe we needed a tax increase. I am not sure I agree with the magnitude of the increase. A 2% increase just wiped out the 2% social security deduction. With the lapse of Making Work Pay credit, we Illinoisans are basically hit with a $400 per year per taxpayer increase in taxes. All of this in a state with some of the highest unemployment in the Nation. Just my two cents worth.
Wouldn’t that tobacco tax “increase” be about 100%, not 200%?
It’s doubled – that’s 200%, right? I guess the wording could be better, I’ll fix it.
It’s clear what you meant, and it’s clear now, but I reserve the right to be hypertechnical on a blog about taxes….
The size of the increase is about 100% of the current tax. Compare to how you described the income tax increase: “Personal income tax rates will jump 66% from 3% to 5%” – the size of the increase was 2/3 of the old rate, or 66% (and change).
btw, I enjoy your blog, thanks for writing.
I agree with both of you. The tax would be $1.99 which is about 200% of the original .98 cents and the increase will be about 100% of the original .98 cents tax.
I do not live in Illionis, I don’t think this is going to help with balancing state budget. When people and businesses are facing a higher tax rate, they have less to spend and invest. This will cause money to flow slower, income to shrink, total tax revenue to the state will not increase as the state has hoped for. Maybe the state budget should be cut, just like families and corporations have been doing. I am a outsider, but I am concerned about states failing, since we are all in the same boat.
I think the tobacco tax failed, however. Does not make a difference to us non-smokers. No savings there for me.
Illinois, however, does not tax virtually any retirement income. Once you’re retired, the tax rate doesn’t matter much. Seems like it would be better to tax hefty pensions before increasing rates.
http://www.revenue.state.il.us/publications/Pubs/Pub-120.pdf
Michael K, that would be political suicide and the legislature knows it. 😉
Taxing the outrageous state employee pensions makes a lot of sense. Many pensioners are double dipping or even triple dipping and still working. Nice gig if you can get it. I can’t.
I’m in Missouri and am happy that MO exempts $6000 of my private pension and half of my taxable Social Security. At least that appears to be the way Tax Cut figures it. Seems ridiculous to totally exempt all of a private pension.
sign me up