While most Illinois taxpayers were asleep early Wednesday, their wallets and bank accounts were being lightened by Illinois lawmakers desperate for more revenue to ease a crushing state financial crisis.
The morning-after reality was this: The state portion of your personal income tax bill is likely to grow by about two-thirds after Gov. Pat Quinn follows through with his vow to sign legislation enacting big tax hikes.
If state taxes would have cost you $2,000 annually under the old rate structure, it's likely your bill will now jump to about $3,300.
In Quinn's first year as governor in 2009, he reported adjusted gross income of $157,122 and shelled out $4,468 in state income tax. If the new, higher rate had been in force, his personal tab would have approached $7,500.
With a lame-duck legislative session just hours from expiration, Democratic leaders worked into the early morning to secure party-line votes to hike Illinois' personal income tax rate from a flat 3 percent to 5 percent, which applies to many small businesses in addition to individuals and families. The hikes will be retroactive to Jan. 1, but it could take employers several weeks to reflect the changes in paychecks.
The corporate tax rate also will jump, from 4.8 percent to 7 percent, though the impact may be less sweeping because of breaks that annually help more than two-thirds of corporations in Illinois avoid payment of that tax.
Thanks in part to former state Sen. Barack Obama, your take- home pay over the next year may not take a noticeable hit despite the big increase in state taxes. That's because Social Security payroll taxes have been reduced for 2011 as part of the federal tax-cut compromise worked out last month between President Obama and congressional Republicans.
For many middle-income Illinois taxpayers, the reductions from the federal payroll tax cut may balance out the costs of the state tax increase, resulting in little immediate impact on withholding from paychecks. But the goal of the payroll tax reduction was to increase take-home pay and stimulate consumer spending, a benefit that Illinois taxpayers may not share in.
There's also this to consider: The payroll tax windfall expires after this year, so in 2012 it will no longer cushion the blow of the state tax hike. That increase is to remain in full force through 2014 and then ratchet down in stages over the next decade, dropping to 3.75 percent in 2015 and then 3.25 percent in 2025 — still higher than the current rate.
It may be worth remembering that the last time Illinois hiked income tax rates, in 1989, it was billed as a temporary increase needed to get the state through a financial rough patch. But the rates never came down and by 1993 were designated as permanent. Until now.
The bottom line of any tax bill can be affected by an array of variables, including exemptions for children and seniors and credits extended to slightly ease the financial impact of property taxes and school costs. But Illinois taxes are generally simpler to estimate than those in many other states because the starting rate is the same for everybody. With personal tax rates rising 67 percent, the amount you owe will rise by roughly that same amount as well.
Under the old 3 percent rate, a married couple with two children and a base income of $100,000 would have a state tax bill of $2,760. But the bill would rise to about $4,600 at the 5 percent rate.
For a senior citizen with a base income of $25,000, the annual bill would grow from $660 to $1,100. A single adult with no children and earning $40,000 annually would owe $1,900 in state taxes under the new rate structure, up $760.
Take the example of one taxpayer, Rashad Gresham, 30, a hospital lab technician who lives in a South Loop apartment. He paid $1,049 in state taxes in 2009 on a taxable income of $34,952. If the revised rates had been in effect back then, he instead would have owed $1,747 to the state.
Gresham, who is single, said he had no idea how Illinois got mired in such a whopping budget mess, but doesn't dismiss the gravity of the crisis.
"People make idiotic decisions all the time at all levels," Gresham said. "I don't know exactly how we got here, but I believe we're here."
Tribune reporter Dan Hinkel contributed to this report.Copyright © 2015, The Baltimore Sun