Lt. Gov. Quinn demands end of unfair "Soak the Middle-Class" tax policies in Illinois, calls for Year of the Taxpayer

SPRINGFIELD -- As millions of taxpayers across Illinois raced to file their income tax returns by Tuesday's deadline, Lt. Gov. Pat Quinn denounced the state's unfair tax code and called for a Year of the Taxpayer that would grant tax relief to everyday people who need it most.

"Across the Land of Lincoln, hard-working people are sitting at kitchen tables, filling out their tax forms, and wondering how they're going to make ends meet," Quinn said.  "Our taxpayers deserve immediate action to provide tax relief and fundamentally reform Illinois' regressive tax code. We need to make 2007 the Year of the Taxpayer in Illinois."

In testimony Tuesday before a hearing of the Illinois House of Representatives Revenue Committee,  Quinn said any changes in the state's tax code must include the Illinois Tax Reform and Relief Act of 2007, his plan to expand the value of the state income tax's personal exemption and offer working families a more generous Earned Income Tax Credit (EITC).

"There's an age-old principle of tax fairness - taxes should be based on ability to pay," Quinn said. "Instead, the Institute on Taxation and Economic Policy - a non-partisan Washington-based research group - has ranked Illinois' `soak the middle class' tax code as one of the ten most unfair tax codes in the country. The Illinois General Assembly needs to pass the Illinois Tax Reform and Relief Act of 2007 and stop levying an unfair tax burden on working families."

As a first step, Quinn called on the General Assembly to expand the value of the personal exemption from $2,000 to $3,000 for tax year 2007, with further phased-in expansions to reach $5,000 by 2009.  For a family of four, the improved personal exemptions next year would result in a tax cut of $120, and would reach $360 by 2009.  

            In 1969, when the Illinois income tax was enacted, the personal exemption - the basic exemption granted to every taxpayer and each of his or her dependents - was set at $1,000, or $4,000 for a family of four.  In tax year 2000, that basic exemption rose to $2,000, where it stands today.

            "If the personal exemption of $1,000 in 1969 had been properly indexed to inflation, it would be worth $5,544 in today's dollars," Quinn said.  "Compared with the current personal exemption of $2,000, that means the exemption's value in real dollars has dropped by almost two-thirds - and Illinois taxpayers are forking over the difference in their state income tax returns."

Thanks to the state's failure to index the personal exemption to inflation, a family of four this year will face a "stealth tax" of $424, Quinn said.

The Illinois Tax Reform and Relief Act of 2007 also includes a substantial expansion of the state of Illinois' Earned Income Tax Credit.  

            The state's credit is based on the federal EITC, a refundable credit of up to $4,400 granted to working families with incomes of less than $37,263. Although most states offer an EITC of 15% to 30% of the federal amount, Illinois' EITC is set at 5% of the federal credit, for a maximum of $220.

The state should double the value of its EITC to 10% of the federal credit in tax year 2007, and should phase in the expansion to 20% of the federal credit over the next three years, Quinn said.

"Illinois has the lowest state EITC in the nation," Quinn said. "The Earned Income Tax Credit is the best pro-job, pro-family, anti-poverty tax relief plan ever devised. By offering a more generous EITC of 20% of the federal credit, up to $880, we will bring Illinois up to par with other states and help working parents lift themselves and their children out of poverty."

Combined, the expanded tax breaks of the Illinois Tax Relief and Reform Act of 2007 would total more than $1,200 for an EITC-eligible family of four in 2009.

The Lt. Governor noted that Washington State, which levies a gross receipts tax similar to that proposed by Governor Rod Blagojevich, has the most regressive tax system in the nation, according to the Institute of Taxation and Economic Policy.

The Seattle-based Economic Opportunity Institute concurs, stating in a 2006 report that "Washington's unusual tax structure makes it unusually regressive and unable to keep up with demands for public services." The report noted that most analysts assume that Washington State's gross receipts tax is largely passed on to consumers, and added that comparative studies of state taxes usually treat Washington's gross receipts tax as a sales tax.

Additionally, Washington State has found that its gross receipts tax does not protect the state tax code from loopholes that favor wealthy corporations at the expense of everyday taxpayers. In its June 2006 report, "Adding Up: New Tax Breaks in Washington, 2004-2006," the Economic Opportunity Institute found that Washington State's legislature had passed more than 60 tax breaks between 2003 and 2006 - tax breaks that will cost the state nearly half a billion dollars in revenues over the next two budget years. 

Boeing alone received $3.2 billion in tax benefits - including substantial breaks on its gross receipts tax bill -- to locate its new assembly plant in Everett, WA.  Those tax breaks were layered on top of the existing $1 billion in tax incentives the company had already received.  In total, Washington State's own Department of Revenue has listed $13.5 billion in potential revenues lost to tax loopholes - an amount equal to more than half the state's entire biennial budget.

            Quinn said the Illinois Tax Relief and Reform Act of 2007 would cost about $425 million in the next tax year.  That loss of revenue could be offset if the General Assembly closed the many tax loopholes that allow major corporations to evade their fair share of the state's income tax.

To make it easier to close tax loopholes, Quinn has proposed the Taxpayer Action Board Initiative.  Under his plan, the Illinois General Assembly would create a board of review to identify and abolish lucrative corporate tax loopholes and avoidances.

The new board - a bipartisan panel to be named by the legislative leadership - would then present their full set of recommendations to the Illinois House and Senate for an up-or-down vote. If the General Assembly  did not vote against the Taxpayer Action Board recommendations, the proposed loophole closures would become law.

"Under this mechanism, legislators would no longer be subject to pressure from high-paid lobbyists and powerful special-interest groups to protect individual unfair loopholes," Quinn said.  "Instead, those loopholes would close in one fell swoop, allowing us to give tax relief to the everyday people who deserve it most."

The 2003 study by the Institute on Taxation and Economic Policy found that the top 1% of Illinois families - taxpayers with average incomes of $1.3 million a year - end up paying only 4.6% of their income in state and local taxes.

 Families with modest incomes - those earning $30,000 to $48,000 a year - pay about 10% of their total take-home in state and local income, sales, and property taxes, the study found.

The lowest-income families in Illinois - those earning less than $16,000 a year - wind up paying more than 13% of their total income in taxes to their state and local governments, the study concluded.