MAJOR ISSUES STILL ALIVE IN GENERAL ASSEMBLY
Tax Increases
The Governor proposed an increase in the individual income tax from 3% to 4.5% and a corresponding increase in the corporate income tax from 7.3% to 9.7%. This includes the 2.5% personal property replacement tax. Quinn also proposed that the personal exemption be increased from $2000 to $6000. The net increase in revenue from the tax increase is expected to be $3.2 billion. The portion of the income tax attributable to corporations will be used to finance part of a statewide construction program for roads, bridges, schools, mass transit systems, etc., which is discussed below.
Eliminating Economic Incentives
Eliminating economic incentives, or what some have wickedly referred to as “loopholes”, had been a staple of the Blagojevich Administration and Quinn’s approach is no different. Eliminating these incentives is expected to generate an additional $287 million in new tax revenue from the state’s business community. Here’s what is targeted so far for elimination:
- Allow the Manufacturers’ Purchase Credit to expire
- Decouple from qualified production credit
- Repeal research and development tax credit
- Change definition of U.S. for certain business subsidiaries
- Decouple from the 2004 federal business tax cuts
- Decouple from federal stimulus provisions
- Tax insurance purchased by certain businesses from large companies outside of Illinois
- Limit corporate income tax credits to 50 percent of liability
- Create a sales tax on customized computer software
- Roll back the graphic arts exemption to only include production
- Tax sweetened tea and coffee at the same rate as soft drinks
· Taxing all grooming and hygiene products at the same rate
· Make changes to certain banking transactions
- Decrease retailers’ vendor discount fee from 1.75 to .75 percent. (This is being proposed to offset a revenue loss from a “sales tax holiday” to take place in August 2009 – see below)
Other Tax/Budget Changes
Governor Quinn also announced the creation of the Taxpayer Action Board to work over the next 60 days to identify further program efficiencies and opportunities to make state government more efficient.
He also announced the following tax and funding changes:
- A ten-day back to school sales tax holiday in August for clothing items of less than $100 per item and school supplies.
- Cigarette and Tobacco Products Tax Increase to generate $365 million.
- Fund sweeps of $450 million. This is a process by which money in dedicated funds, like NPDES permit fees, pesticide fees, etc., are diverted to the state’s General Revenue fund (GRF), which pays for schools, hospitals, prisons, salaries, etc.
- Federal Stimulus receipts of $4 Billion will be used to offset the expected deficits over the two year period. Offsetting these cuts is increased spending for Medicaid, Education, and other programs and a reduction of the backlog of bills owed to medical providers. The federal stimulus program requires the backlog be reduced to a 30-day payment cycle.
Statewide Construction Program
The Governor proposed a $26 billion capital program for transportation, school construction, economic development, and state facilities requiring $11 billion of state resources mostly through the sale of bonds. The debt service on these bonds would come from the following sources:
· Increases in the Corporate Income Tax
· A $20 increase (from $78 to $98) in vehicle registrations
· A $10 increase (from $10 to $20) in driver’s license fees
· An increase in vehicle transfer fees.
· $150 million from existing road fund sources
· 10% of the income tax rate increase, which has historically been shared with local governments
Like every budget that has ever been proposed, it is subject to negotiations with the leaders of the House and Senate, namely House Speaker Michael Madigan and Senate President John Cullerton. CICI will keep you abreast of any developments in this budget. For even more details of the governor’s proposed budget, follow this link: http://www.budget.illinois.gov/
Prevailing Wage for Enterprise Zones & TIF Districts
After a fairly contentious debate, the House Labor Committee advanced SB 43 (Clayborne, D-E. St. Louis), along party lines to the House Floor. The measure proposes to extend the Prevailing Wage Act to all projects in an enterprise zone or a TIF district, even for projects that are 100% financed from private sources, with the exception for housing of 6 units or fewer. The bill also provides that "public works" also includes any project that will derive a financial benefit, in whole or in part, from loans, grants, subsidies, incentives, or other financial benefits made available through these areas, even though there are not utilized. This covers just about every construction project in these areas, which encompasses a very large part of the state. A significant number of CICI members are in Enterprise Zones.
Please note that the Chemical Industry Council of Illinois Legislator is not intended to convey legal advice or set forth all legal requirements applicable to particular circumstances.
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