Illinois constitutional amendment on income tax rates clears state Senate

FILE PHOTO: llinois Governor J.B. Pritzker delivers remarks at the North America's Building Trades Unions (NABTU) 2019 legislative conference in Washington, U.S., April 9, 2019. REUTERS/Jeenah Moon

CHICAGO (Reuters) - The Illinois Senate on Wednesday voted to put a proposed constitutional amendment on the ballot to replace the state’s flat income tax with graduated rates in order to raise more than $3.3 billion a year for the financially shaky state.

The measure, which now heads to the House, is the main component in Democratic Governor J.B. Pritzker’s plan to address Illinois’ fiscal woes, which include a huge unfunded pension liability and a chronic structural budget deficit that have dropped the state’s credit ratings to a notch or two above junk.

The Democrat-controlled Senate passed the resolution in a 36-22 vote. If approved by a required three-fifths majority vote in the House, which is also run by Democrats, the amendment would appear on the November 2020 ballot.

Related bills contingent on voter approval of the amendment were also approved in the Senate. They would create a graduated income tax rate structure, freeze school property taxes under certain circumstances, and repeal Illinois’ estate tax.

Individual income, currently taxed at a flat rate of 4.95 percent, would be taxed at rates of 4.75 percent for the lowest incomes, rising to as much as 7.99 percent for high incomes, under the Senate bill, raising $3.325 billion in additional revenue.

House action on the constitutional amendment “will commence as events warrant,” according to Steve Brown, a spokesman for House Speaker Michael Madigan, who supports the move to graduated income tax rates. The legislature’s spring session is scheduled to end May on 31.

House Republican Leader Jim Durkin called the Senate votes “another step towards handing a blank check over to the Democrats and their reckless spending habits.”

Pritzker, who took office in January, pitched the graduated tax plan as a way to help address a $133.5 billion unfunded pension liability and fund critical state services. In the meantime, his proposed $39 billion budget for fiscal 2020 relies on $1.1 billion in new revenue if lawmakers legalize recreational marijuana and sports betting and pass other measures.

“I applaud the Senate taking a major step forward to create a fair income tax system in Illinois, ensuring that 97 percent of taxpayers will pay the same or less and only those making $250,000 will pay more,” Pritzker said in a statement.

Reporting by Karen Pierog in Chicago; Editing by Matthew Lewis