Illinois state tax revenue is rising, so why is Pritzker pushing small business tax hikes?

COVID-19 prompted $7.5 billion in federal relief, but state revenues were up during the past 8 months. Delayed tax due dates were partly responsible, but revenue even grew where it should have declined. So why should small businesses have to come up with $2 billion more?

Illinois’ tax collections have bumped up $2.33 billion during the past eight months compared to the same time a year earlier, which is a 10% increase.

While the state partly explains the change is from tax collections delayed from April 15 and into a new fiscal year, Truth in Accounting noted that tax revenue has been rising for years. Even sales taxes have grown despite Illinois losing population.

Increased collections include $1.8 billion extra from individual income taxes, which have steadily increased since 2017. On top of growth in tax revenues, Illinois state government just received $7.5 billion from the federal government as part of the American Rescue Plan signed into law March 11.

Which raises a couple of questions: How can Illinois Gov. J.B. Pritzker push for nearly $1 billion from nine new taxes he wants to impose during the upcoming fiscal year 2022? And why is he seeking up to another $1 billion by canceling a state tax credit for businesses trying to weather COVID-19 impacts?

Tax collections may be up, but small businesses and future jobs in Illinois are suffering. The year of COVID-19 turned out the lights for 35% of Illinois’ small businesses as of March 3, compared to Jan. 1, 2020, according to data from The Opportunity Insights Tracker. That’s a major jobs problem because 69% of all new jobs created in Illinois come from firms with fewer than 20 employees.

So why are these job creators being targeted by state government?

Pritzker in his fiscal year 2022 budget is calling for nine new taxes that total $932 million. He calls them “closing corporate loopholes,” but they mainly hurt small businesses and job creation programs. Some have nothing to do with business. They are:

• Cap and delay credits for business operating losses by three years: $314 million
• Delay expensing of business investments: $214 million
• Double-tax profits U.S. companies earn abroad: $107 million
• New sales tax on biodiesel gasoline: $107 million
• Limit retailers’ reimbursement for collecting state sales tax: $73 million
• Limit manufacturing equipment sales tax exemption: $56 million
• Cancel phase-out of costly corporate franchise tax: $30 million
• Eliminate credit for creating construction jobs: $16 million
• Reduce tax scholarship credit for disadvantaged students: $14 million

Besides the $932 million in new taxes, Pritzker is pushing for as much as another $1 billion.

A provision in the federal Coronavirus Aid, Relief and Economic Security Act, which Illinois tax code would typically adopt automatically, would essentially allow struggling small businesses to get an advance on their future tax returns. Pritzker wants to deny 440,000 small businesses the state version of the tax break, worth $500 million to $1 billion.

Pritzker in January first targeted the tax break, which prompted an immediate outcry from 11 business groups. He failed to get members of the lame duck 101st Illinois General Assembly to agree, but on March 17 Senate Bill 217 was quickly moving, which insiders believe is the vehicle for the tax hike proposal in the new legislature. A plan to adopt this idea, referred to as “decoupling,” failed to advance in the General Assembly March 18, but the issue is not dead yet.

Tax collections are up despite the pandemic. Adding what could be nearly $2 billion in new taxes as small businesses are trying to recover and bring back some of the nearly 500,000 jobs lost in Illinois during 2020 makes little sense and has the potential to do real damage to an Illinois economy that has lagged the nation for two decades before COVID-19 hit a year ago.

Pritzker already passed 20 new taxes and then pushed for his “fair tax.” More taxes in a state that already is the nation’s highest taxed is not a solution.

But there are solutions available to get Illinois’ financial crisis under control, including common sense pension reform, budgeting for results, consolidating district-level school administration and other reforms outlined in an Illinois Policy Institute plan called Illinois Forward 2022. These reforms would end politicians’ constant push for more and more tax hikes.

Pritzker is a broken record on hiking taxes. But what high taxes are giving Illinois is record population loss and record job loss.