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On Tuesday, the voters in Illinois voted down a referendum that would have allowed the State legislature to adopt a graduated income tax under which people with higher incomes could have been taxed at a higher rate than people with lower incomes.
If the referendum passed, a State statute would have kicked in and people with income under $250,000 would have been taxed at rates less than the current rate. People earning more than $1 million would have been taxed at a rate up to 7.99%. Gov. Pritzker was anticipating that the graduated income tax would have generated an additional $3 billion in annual revenues.
The referendum was the subject of a massive advertising campaign, with Gov. Pritzker reportedly contributing $55 million of his own funds to support the referendum. Other wealthy people put in a like amount to fund the opposition.
With the defeat of the fair tax referendum on Tuesday, Governor JB Pritzker warned of substantial cuts in government services and/or tax increases that will follow.
“For decades before I became Governor, Illinois expenditures never matched its revenues,” Gov. Pritzker said. “One of the reasons that I ran for office was to finally tackle our fiscal problems in a responsible way, while investing in what makes the State a great place to live, improving our schools expanding affordable health care, creating a durable social safety net and making our state run more efficiently, all while living responsibly within our fiscal means.
“Today, this problem has reached a peak, as we in Illinois are racking up more bills than we have in revenues.”
He said before he took office the State went for two years without a State budget and ran up a backlog of almost $8 billion in unpaid bills. He said he has brought that down by $1 billion.
In one of his first major addresses, he said, “I laid out our three paths forward with regard to the budget.” He said the first option would be to immediately make billions of dollars in cuts. To do that would require reducing discretionary spending in our State by approximately 15%. “That’s 15% fewer state troopers. That’s 15% fewer students going to college, 15% fewer working parents receiving child care systems, and 15% less money for your local public schools, which likely means that your property taxes will increase,” he said.
The second option was ‘to raise revenue within our current regressive flat tax system and impose a higher flat tax, which falls disproportionately on the working poor and the middle class.”
The third option “was the fair tax,” which he said “would have helped to address our budget crisis, with the least damage to the working families of Illinois.”
“Had the fair tax passed, we would have been on a course toward long-term stabilization of our State’s finances, balancing the budget, eliminating the backlog, making our pension payments and investing in a rainy day fund in a way that would start to unburden the working families of our State.
Governor Pritzker said, “We now sit at a crossroads,” Gov. Pritzker said. “Our State finances still require fundamental structural change. In the coming days, I’ll be talking with the leaders in the General Assembly about our path forward. But here’s what we know for sure.
“There will be cuts, and they will be painful,” said Gov. Pritzker.
The Governor said, “I’m going to fight to make sure that we don’t have cuts to education. That’s one of the most important investments that you can make. Honestly, in a State, when you look at all the ways in which you can use the dollars that are available in State government, investing in education is the one that has the longest term highest return.”
When asked what he intended to do to address the budget, Gov. Pritzker said, “I will say that, from the beginning, I’ve told people what the options are. … We need to look at those options and decide what it is that we want to do.”
After the defeat of the fair tax referendum, the two remaining options are substantial cuts and/or an increase in the State’s flat rate income tax.
Gov. Pritzker did not say where the cuts would take place, but suggested they could hurt public schools, impact affordable child care, and impact care for elderly parents.