Harmon backs away from graduated income tax

Illinois Capitol News

The Illinois Senate President plans to put corporate tax breaks ‘under the microscope’ in Springfield

SPRINGFIELD, Ill. (NEXSTAR) — In 2018, billionaire and longtime Democratic donor J.B. Pritzker won his first successful campaign for public office on a pledge to raise taxes on people like himself while sparing low-income earners and the middle class from regressive tax hikes.

By 2022, he’ll face voters whose political memories of legal marijuana, sports betting, and a minimum wage hike could be clouded by an economic downturn from a once-in-a-century pandemic. And this time, he’ll campaign without a progressive income tax on the ballot with him.

“That’s not something I’m pushing for,” Pritzker said from his office in January.

The governor isn’t the only Democrat to retreat from his single biggest policy proposal. Illinois Senate President Don Harmon, who was the chief sponsor of the graduated income tax for several years in the statehouse, all but guaranteed the proposal would not appear on the ballot again in the upcoming statewide election.

“I don’t think it’s the right time to be revisiting that,” Harmon said after session on Tuesday.

“The lesson I took from the election in 2020 was that the voters aren’t ready for the ‘Fair Tax,'” Harmon said, referring to the drubbing voters gave the proposal last fall. “I still think it’s the right policy, but I’m listening to the voters, and I think they’ve asked us to come down here, sharpen our pencils, and come up with a responsible balanced budget without a general tax increase.”

The graduated income tax needed 60% support to alter the state’s constitution. In a state where Joe Biden won 57.5% of the vote, Pritzker’s graduated income tax got just 46%.

In analyzing the ballot referendum’s defeat, several top Democrats blamed a misinformation campaign from Republicans. Comptroller Susana Mendoza (D-IL) said it was “unfortunate people voted against their own self interest,” but added that “you can’t cry over spilled milk.”

“I think there was a lot of misinformation out there,” Mendoza said in an interview last month. “And let’s just start with the premise that people in general don’t trust their government. I certainly can’t even blame people for not trusting their government. And I think that the Republicans and the billionaires in this state, for the most part, did a masterful job of tapping into that distrust and creating serious misinformation.”

Other officials suggested Democrats should revive the idea, pointing to a similar ballot drive in Colorado where Democrats tied a graduated income tax proposal to a specific spending plan.

“People want to know what you’re going to do with the money,” House Speaker Chris Welch told an Economic Club of Chicago forum last month. “I certainly think tying that new revenue to pensions would be a winner.”

The state’s unfunded pension liabilities soared to $317 billion, according to a February report from Moody’s Investors Service.

Last April, Harmon penned a letter to Congress requesting $10 billion in “direct cash assistance to the pension systems.” At the time, his request was swiftly shot down.

On Wednesday, Congress approved a $1.9 trillion stimulus package in President Joe Biden’s ‘American Rescue Plan,’ which includes $7.5 billion for the state of Illinois, $5.5 billion for local governments, including $1.8 billion for the city of Chicago, and another $5 billion for K-12 schools.

How would the cash infusion alter the budget making process?

“We’re not entirely clear yet,” Harmon said. “It’s wonderful that Washington has finally woken up and figured out how important it is that the federal government help state and local governments with the economic impact of the pandemic.

“We’re reviewing it,” he said. “I hope it will provide some one-time resources to solve one-time problems. We still have to look at our structural budget issues.”

“We should not look at this as a windfall,” state senator Julie Morrison (D-Deerfield) cautioned on Monday.

She mimicked some lawmakers who might think, ‘Oh, gosh, isn’t this great? Now we don’t have to worry about being thoughtful and creative in our budgeting.'”

“Absolutely the opposite,” she said. “Illinois’ economy, as we know, has got a lot of issues, a lot of long-term problems. We need to not take this as a gift, but just as a break — a pause — so that we can stabilize a little bit.”

State senator Steve McClure (R-Springfield) acknowledged the federal relief will give the legislature some breathing room in the budget making process, and said “what happens now is going to affect us five or 10 years from now.”

“It’s certainly going to be a big benefit to the state of Illinois as far as funds,” he said. “But, you know, the question for us is what our state now does with those funds? Do we go back into the same old ways? Or do we try to use this to say, ‘Okay, we’ve caught a break here from the federal government. And so maybe we’re going to try to get us on the right path.'”

Before the relief from Congress was a guarantee, Pritzker pushed to end $900 million in corporate tax breaks to balance the budget. Some business groups see the money coming from Congress and argue ending tax breaks could hamstring the state’s effort to recover jobs lost during the pandemic.

Josh Sharp, CEO of the Illinois Fuel and Retail Association, called on Pritzker to reverse one of his budget proposals to end a sales tax exemption for selling biodiesel at the gas pump, which he described as “a net tax increase of $107 million.”

“I think it’s perfectly appropriate to put these tax expenditures — the loopholes — under the microscope to see what works and what doesn’t work,” Harmon said. “We should keep the things that are working. But I see no problem getting rid of things that don’t. And I hope that the businesses that have benefited from them will look forward to the opportunity to come to Springfield and show us just how many jobs have been created and maintained because of those tax incentives.”

“The federal aid coming to Illinois should ensure we can end policies that punish small businesses and pass a state budget this spring that supports our recovery, not slows it,” Sharp said.

“The fundamental reason for these tax incentives is to create job opportunities for Illinois residents,” Harmon replied. “If they’re working, great. But [if] they’re not working, let’s get rid of them.”

While the Senate begins to grapple with the challenges and changes brought about by the pandemic, their return to debating taxes offers a bit of optimism that a return to normal is within sight.

“I’m very pleased we’re proving our ability to safely return to work,” Harmon said.

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