Government: Illinois Faces Steep Tax Increases to Meet Fiscal Crisis

After years of papering over severe budget shortfalls, Illinois lawmakers Friday were closing in on a plan to raise the state income tax by 75 percent and refinance roughly $8.5 billion in debt in an effort to stabilize the state's finances.

The deal, still being hashed out between Gov. Pat Quinn (D) and Democratic legislative leaders, also would raise the state's corporate income tax and increase the cigarette tax by $1 a pack.

Lawmakers also are discussing reviving a proposal to sell more than $3.75 billion in bonds to plug part of the gaping hole in the state's pension fund.

That leaders would contemplate raising the income tax rate from 3 percent to 5.25 percent and simultaneously take on new debt speaks to an increasingly desperate financial situation. But while experts call Illinois's plight the worst in the nation, a similar scenario is playing out in many states that are grappling with the perils of air-brushing structural budget problems rather than implementing difficult tax increases or service cuts.

The state's fiscal problems have mounted even as its tax burden has remained relatively modest. Its income tax rate is among the lowest in the nation at a flat 3 percent. Its sales tax extends to only a small sliver of services. Yet the red ink has flowed for years, allowing the state to function even as its budget problems mounted.

For more, see Illinois Faces Steep Tax Increases to Meet Fiscal Crisis by Michael A. Fletcher, January 8, 2011 at The Washington Post.