SPRINGFIELD — A year after Illinois residents were hit with a “temporary” income tax hike, several state government experts say it looks like the tax hike is likely to become permanent.

By Andrew Thomason and Anthony Brino | Illinois Statehouse News

SPRINGFIELD — A year after Illinois residents were hit with a “temporary” income tax hike, several state government experts say it looks like the tax hike is likely to become permanent.

The General Assembly approved raising the individual income tax rate by 67 percent and corporate income tax rate by 46 percent during a lame-duck session a year ago.

Proponents said the increases were needed to close a budget deficit that at one time approached $15 billion. Opponents said a tax increase would be a damper on the businesses who employed taxpayers, hurting Illinois’ economy.

“We have an emergency, a fiscal emergency. Our state was careening toward bankruptcy and fiscal insolvency. Even in the last couple of months, the situation got seriously more dire,” Gov. Pat Quinn said the day after the tax increase passed in January 2011.

The increases are estimated to bring in about $7 billion in revenue for 2011, but even that shot of cash is not expected to cover expenditures.

Quinn’s budget office projects that the state will run a deficit of $507 million this fiscal year and an even larger deficit of $818 million in fiscal 2015, when the majority of income tax increases are set to expire, and he has not identified how to balance that budget.

Future of the tax increase

J. Fred Giertz is an economist with the Institute of Government and Public Affairs at University of Illinois at Urbana-Champaign and puts out a monthly index of the state’s fiscal health.

“Even with the tax increase, they haven’t gotten the budget under control,” Giertz said. “I don’t think the state has the political will to make spending cuts, so they’ll probably end up keeping the tax.”

Mike Lawrence is a longtime statehouse observer who worked for Gov. Jim Edgar’s administration in the 1990s. Edgar, a Republican, ran for office on the platform of making a temporary income tax increase permanent, and followed through once he was elected.

The deficit Edgar’s administration dealt with topped out at $2 billion.

“The magnitude of the problem (now) is exponentially greater,” Lawrence said.

Lawrence predicted that even if the current income tax increase disappears at the end of 2014, some kind of tax increase will take its place.

“That revenue is going to have to be replaced and augmented, so we’re going to see higher taxes to deal with this fiscal situation. At the same time, we’ve got to see some rather dramatic steps taken in the area of pension and high growth spending areas, such as health care,” Lawrence said.

Lawrence and Giertz said the state’s finances would have been worse without the tax increase.

“But if the state was already paying its bills and managing its spending, the tax wouldn’t have been necessary,” Giertz said.

The backlog of bills owed to vendors and businesses that provided services to the state dropped from about $6 billion to $4 billion after the income tax increase, but has since stalled at that level over the past couple of months.

To extend the income tax increase would require another vote by the Legislature and signature by Quinn. Last year’s increase was passed with just Democratic votes, and the overwhelming majority of Republicans have vowed to fight an extension.

Whether the political will exists to keep a tax increase that costs the average household almost $1,000 a year has yet to be seen.

Kelly Kraft, Quinn’s budget spokeswoman, declined to say whether Quinn would pursue making the increase permanent.

“We will have a governor’s election, which will debate this issue,” Kraft said.

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