Tax and Budget

Released September 23, 2021

Contrary to what the governor proposed in the FY 2022 General Fund budget proposal, K-12 funding under the Evidence-Based Funding formula (EBF) resumed funding of the $300 million Minimum Funding Level in the FY 2022 Enacted General Fund Budget, as it had in FYs 2018,2019, and 2020. This is certainly better than being held level with the prior fiscal year, as was done in FY 2021.

Volume IV of the Fully Funding the EBF series makes some minor adjustments to CTBA’s model to align more closely with the Illinois State Board of Education’s methodology and reporting. This change is made to the overall Adequacy Gap funding level (changes from 100% to 90% to accommodate for Federal funding). This change in methodology is applied to the four scenarios found in the Fully Funding the EBF series Volume Three.

Released July 12, 2021

On March 11, 2021, the Biden Administration secured passage of the American Rescue Plan Act (“ARPA”), which provides fiscal relief designed to counter economic issues created by the pandemic. ARPA is considerable in size and provides a total of $1.9 trillion in federal aid for state and local governments to use to support the provision of various core public services such as healthcare, human services, and education, as well as to infrastructure.

Given the significant federal aid flowing through ARPA, CTBA has compiled the following answers to some of the most frequently asked questions about that legislation and how it will impact Illinois.  

Released March 16, 2021

In the FY 2022 General Fund budget proposal the Governor announced in February, K-12 funding under the Evidence-Based Funding formula (EBF) is once again held level with FY 2020, in nominal, non-inflation adjusted dollars. While that is certainly better than being cut from FY 2020 levels in nominal dollars, it represents a step backward. By not providing additional new funding for the EBF, the state is extending the time it would take to fully fund the EBF by two years – if the state continues to put in a minimum of $300 million yearly beginning in FY 2023. That two year extension would mean extending the timeline to more than four times longer than what is required by statute. 

This update is the third installment in the Fully Funding the EBF Series.

Released February 16, 2021

Without new revenue available from the proposed Fair Tax, short-term borrowing, Federal Aid, and cutting some expenditures has allowed Illinois to hold on during the current fiscal year. But this is a short-term solution, and not a sustainable solution in tackling the long-term fiscal woes of Illinois. In our new short report, “Increasing the Income Tax Rate: One Method for Addressing Illinois’ Long-term Fiscal Problems” CTBA analyzes potential benefits of increasing the income tax rate, while ensuring that any increase in the income tax address the regressivity of a flat rate income tax structure through refundable tax credits.

Released February 2, 2021

Part of the federal economic stimulus created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, involved increasing the tax relief businesses could claim under the existing net operating loss and excess business loss tax breaks. Among other things, the Cares Act made these tax cuts retroactive, meaning businesses can claim losses and reduce their tax liability for years in which the pandemic had no impact on their profitability. CTBA provides reasoning for supporting decoupling from Federal CARES Act Tax Breaks.

Released October 21, 2020

In early August, the Illinois Chamber of Commerce issued a press release arguing against ratification of the proposed amendment to the Illinois Constitution that will permit the state to utilize a graduated rate structure for its income tax. According to the Illinois Chamber, such ratification, coupled with implementation of the specific graduated rate structure identified in P.A.101-0008, which is called the “Fair Tax” by proponents, would “somehow” shrink the Illinois economy, and disproportionately harm women and minorities. But the press release based these claims on largely unsubstantiated findings contained in an Executive Summary of the report, “Illinois’ Proposed Graduated Income Tax: Impacting Jobs and the Economy,” which the Illinois Chamber paid the Berkeley Research Group (BRG) to produce.

 

Unfortunately, the Executive Summary does not provide much in the way of support for the conclusions it reaches, nor does it regularly cite its sources, or even provide insight into the model BRG used to reach its conclusions which is particularly problematic in this instance, given that the main findings contained in the Executive Summary are contrary to prior research on migration, tax burden, and the economy.

 

CTBA decided to reached out to both the BRG and the Illinois Chamber to request a copy of the full report, however, neither the Illinois Chamber nor BRG was willing to make the full report available to either CTBA or the public. CTBA chose to respond to the BRG Executive Summary released by the Illinois Chamber anyway. To find out more about how, when compared to the body of research conducted by credible sources in the relevant areas, the Key Findings presented in the Executive Summary are revealed to be either inaccurate or misleading, please read CTBA’s new Issue Brief, “Analysis of Berkeley Research Group Graduated Rate Income Tax Impact Report.”

Released October 16, 2020

Do you still have questions about Illinois’ proposed amendment to the Illinois Constitution, often referred to as the “Fair Tax”? Over the past several months, the Center for Tax and Budget Accountability (“CTBA”) has been compiling some of the most frequently asked questions about the Fair Tax and has created this FAQ to help voters understand this ballot initiative.

Released October 14, 2020

On November 3, 2020, voters will have the chance to ratify an amendment to the Illinois Constitution which would allow the state to use a graduated rate structure for its income tax. Ratification of this amendment would  permit implementation of Public Act 101-0008 (“P.A. 101-0008”) which was signed into law on June 5, 2019. If implemented, this legislation which is frequently referred to as the “Fair Tax” by proponents, would replace the state’s current flat rate income tax with a graduated rate structure that: is tied to ability to pay; in normal economic times would raise around $3.5 billion in new revenue annually; and would effectively help eliminate some of the long-term structural flaws that have consistently made Illinois’ overall tax system one of the most unfair and poorly performing in the nation.

Many of those opposed to the Fair Tax have tried to mislead Illinoisans into voting against ratifying the proposed amendment to the state’s constitution this November, by relying on arguments that have emotional appeal but are not supported by either evidence or the vast body of research. One such specious argument consistently made against the proposed Fair Tax is that the change to a graduated rate income tax structure will cause a mass exodus of middle-income households and millionaires from Illinois.

This claim, however, is exposed for the baseless canard it is when evaluated against the body of research covering the relationship—or as it turns out lack thereof—between tax policy and migration, as well as the relevant data from the Internal Revenue Service (“IRS”), U.S. Census Bureau, and the Illinois Department of Revenue (“IDOR”).  People (including millionaires) move for many complicated, interrelated reasons, least of which is because of tax policy.

Released October 1, 2020

On November 3rd, 2020, Illinois voters will have the opportunity to ratify the proposed amendment to the Illinois Constitution that would eliminate the mandate that state income taxes be assessed using only one flat rate.

This is a crucial moment for Illinois since it has historically been, and currently remains, one of the most unfair taxing states in the nation. From a textbook standpoint, an “unfair” tax system is a regressive tax system—that is, one that imposes a greater tax burden on low- and middle-income families than on affluent families, when tax burden is measured as a percentage of income.  It is unfair because such a system fails to allocate tax burden in a manner that correlates with ability to pay, thereby worsening the substantial growth in income inequality that has occurred in the private sector over the last four decades. But building fairness into a state tax system is difficult, given that every tax—or fee for that matter—which is available to fund public services provided at the state or local level is regressive except for one: the income tax.  The income tax is the only tax that can actually be designed to comport with ability to pay and hence create some tax fairness, because it is the only tax that can be designed to assess higher tax rates on higher levels of income, and lower rates on lower levels of income.

Unfortunately, Article IX, Section 3 of the Illinois Constitution mandates that the state income tax be imposed at one flat rate across all levels of income. Hence, Illinois is constitutionally prohibited from utilizing the income tax to play the essential tax policy role of offsetting the natural regressivity of every other tax and fee imposed at either the state or local level. In fact, Illinois’ inability to build some fairness into its tax system through implementation of a graduated rate income tax has played a major role in driving the ongoing deficits in the state’s General Fund, while also hampering private sector economic growth.  The good news is a genuine opportunity for meaningful reform of the Illinois income tax now exists. That is because on June 5, 2019, Governor Pritzker signed Public Act 101-0008 (“P.A. 101-0008”) into law. If implemented, this legislation will create a new, graduated rate income tax structure, frequently referred to as the “Fair Tax” by proponents, to replace the state’s current flat rate income tax.

To learn more about how the Fair Tax not only ties income tax burden to ability to pay, but also raises new revenue in a manner that will effectively help eliminate some of the long-term structural flaws that have consistently made Illinois’ overall tax system one of the most unfair and poorly performing in the nation, please read the new CTBA Report, “Implementing the “Fair Tax” Will Help the Illinois Fiscal System Respond Better to the Modern Economy While Promoting Tax Fairness.”

Released August 4, 2020

Fully Funding the Evidence-Based Formula: 2020 Update” is an update to the “Fully Funding the Evidence-Based Formula: Four Scenarios” report from 2019. The updated 2020 report highlights three different funding scenarios, identifying for each scenario how long, and how much money would be required to fund an adequate and equitable education as identified by the Evidence-Based Funding Formula. 

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