Saturday marked the passing of the deadline for the state of Illinois to pass its budget and avoid receiving a downgrade to junk status on Illinois Credit Rating. The state has been without a budget for three years and late Sunday evening the Illinois House approved an alarming measure; the lawmakers in the financial strapped state have decided to raise taxes in order to salvage the state’s poor finances. The tax hike is an unprecedented 32% increase on income tax and corporate income tax bringing the former to 4.95% from 3.75% and the latter to 7% from 5.25%. The bill passed 72 – 45 along with a $36 billion spending plan that was approved minutes later in a 81-34 vote.
“While no one could say this was an easy decision, it was the right decision,” House Speaker Mike Madigan said. “There is more work to be done.” The propose tax increase will make a journey to the state Senate which last approved a revenue bill on May 23 when all Democrats in the Senate voted in favor of what was deemed a “grand bargain” package. Nevertheless, Governor Bruce Rauner has been adamant in stating that he would only support an income tax increase if it is limited to four years along with a four year freeze on property tax. He is now threatening veto, stating:
“I will veto Mike Madigan’s permanent 32% tax hike. Illinois families don’t deserve to have more of the hard-earned money taken from them when the legislature has done little to restore confidence in government or grow jobs,” Rauner said.ValueWalk’s December 2021 Hedge Fund Newsletter: Hedge Funds Avoid Distressed China Debt
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“Illinois families deserve more jobs, property tax relief and term limits. But tonight they got more of the same.” He also said in an emailed statement that “if the legislature is willing to pass the largest tax hike in state history with no reforms, then we must engage citizens and redouble our efforts to change the state.”
The tax bill did obtain some Republican support but Illinois House Republican leader Jim Durkin expressed concern how the bill would resolve the $14 billion in unpaid bills the state faces. Furthermore, Durkin exclaims that he desires to see a “balanced budget package” that includes spending reductions as well as reforms.
“I am disappointed that we’re taking this up at this moment when there has been significant, significant progress to address the priorities of the governor and also the priorities of this caucus,” Durkin said.
These measures are unclear as to whether or not they will stave off the S&P’s promise to downgrade Illinois credit rating if it failed to pass a budget by Friday midnight. The credit agency warned the state that it would give Illinois Credit Rating a junk status if their budget wasn’t stabilized by July 1st– that deadline has passed. The fate of the state appears to be dismal as it confronts a horrid fate- the state will both get a junk rating and face escalating cost for borrowing or use extreme measure to save its already downtrodden Illinois Credit Rating at the risk of alienating Illinois residents through increased taxation. Reports have indicated that the mass migration out of the state has already begun with Chicago being called the fastest shrinking city in the nation.