CHICAGO — A second public policy organization is calling for Illinois to tax retirement income and expand the sales tax to some consumer services as part of a sweeping plan to fix the state's fiscal woes.
The recommendations from nonpartisan budget watchdog Civic Federation come one week before new Gov. J.B. Pritzker is scheduled to present his first budget proposal to lawmakers. The Democratic governor backs legalizing and taxing recreational marijuana and sports gambling, as well as overhauling the state income tax system in two years. But he hasn't endorsed taxing retirement income or gotten specific on taxing services.
In its annual "budget roadmap," the Civic Federation's Institute for Illinois' Fiscal Sustainability says new taxes should only be considered as part of a multiyear plan that also limits state spending. It proposes limiting spending growth to 2.4 percent per year for five years.
The call to tax retirement income echoes a similar proposal last week from the Civic Committee of the Commercial Club of Chicago, which is made up of the city's business elite. The Civic Federation has been pushing the idea for several years, though its recommendation hasn't gained traction in Springfield.
The watchdog group's report notes that Illinois is one of only three states that have an income tax but don't tax any retirement income. All of Illinois' neighbor states tax retirement income in some form.
Civic Federation President Laurence Msall called the state's policy "an outdated and expensive exemption" that shifts the tax burden from wealthy retirees to working people. By taxing all retirement income that is subject to the federal income tax, Illinois could bring in $2.5 billion during the budget year that begins July 1, according to the report. Last week, the Pritzker administration projected a $3.2 billion budget deficit for the next fiscal year in a report that set the stage for a low-expectations budget plan next week.
The report also recommends extending the state sales tax to 14 services that are taxed in Wisconsin but not Illinois, including cable and internet, parking and towing, and landscaping.
The Civic Federation cautions against counting money from legalized marijuana and sports betting taxes in Pritzker's initial budget, noting that new industries take time to catch on and that revenue from such efforts often falls short of projections.
"In order to avoid building deficits into future budgets, the initial proceeds from sports gambling or cannabis should not be used to prop up Illinois' budget until the state has a reliable accounting," Msall said in a statement.
Among its recommendations to address the state's chronically underfunded pension plans, the report says lawmakers should ask voters to approve an amendment to the Illinois Constitution that would allow the legislature "to make reasonable and moderate changes to the pension benefits of current employees and retirees." The state constitution currently says benefits "shall not be diminished or impaired."