One area of deep contrast between the two major-party candidates for governor is their stance on taxes.

One area of deep contrast between the two major-party candidates for governor is their stance on taxes.

The short version is that Republican state Sen. Bill Brady is against new taxes and has proposed cutting some, while Democratic Gov. Pat Quinn favors an income tax increase as a way to ensure adequate education funding and to help erase $13 billion in red ink from the state’s balance sheet.

But state tax policy is more complex than just saying you are for or against a tax increase. The Quinn and Brady campaigns were asked questions aimed at probing more deeply into their stances on taxes and fees in Illinois. Below are their responses on several issues:

The state income tax

The state income tax on individuals is a flat 3 percent, which has been unchanged since 1989. For the past seven months, Quinn has said he favors raising it from 3 percent to 4 percent — he calls it an income tax “surcharge” — in order to shield education from cuts. The plan would raise roughly $3 billion.

But Quinn has previously favored other income tax increases. In 2009, when he first took office, he proposed raising the tax from 3 percent to 4.5 percent and increasing the personal exemption to blunt the tax increase’s effect on low- and middle-income wage earners. A version of that plan, which would have raised roughly $4.1 billion, failed to get out of the Illinois House.

During the 2009 legislative session, Senate Democrats passed a plan raising the income tax from 3 percent to 5 percent.
The proposal, which would have raised $5.6 billion, included property tax relief and increased the personal exemption for taxpayers. Quinn testified in favor of it in a House committee.

Asked whether additional income tax increases, beyond raising the tax from 3 percent to 4 percent, would be considered if Quinn is re-elected, spokeswoman Mica Matsoff declined to say “yes” or “no.” She also declined to say whether Quinn would sign the Senate Democratic plan if it came to his desk after the election.

“Governor Quinn supports a 1 percent surcharge for education,” Matsoff said.

Quinn has also said he wants to use some of the revenue generated to deliver property tax relief. But Matsoff declined to say whether it would come in the form of a rebate on income tax returns or whether Quinn would seek to reduce property taxes statewide through legislation.

Brady opposes raising the income tax.

The state sales tax

The state charges a 6.25 percent sales tax on most goods, with some exceptions, including food and drugs. The sales tax was increased from 5 percent to 6.25 percent in 1990.

Of the 6.25 percent tax, local governments get 1.25 percent, or 20 percent of the total, of sales tax revenue. Cities and counties can levy additional sales taxes on top of the state sales tax. Services are not subject to the tax.

The state imposes the sales tax on gasoline in addition to a separate motor fuel tax of 20.1 cents per gallon on gasoline and a 22.6-cents-per-gallon tax on diesel fuel. Brady wants to eliminate the state’s 5 percent share of the sales tax on gasoline.

That means statewide, the sales tax on gasoline would be reduced to 1.25 percent. Brady believes levying a sales tax on gas puts Illinois at a disadvantage with states that border it. Those who currently go out of state to buy gasoline to avoid the sales tax also avoid the state’s motor fuel tax, which is used to repair or build roads and bridges, he said.

“Repealing the sales tax on gasoline will create more purchases of the gas and re-institute the motor fuel revenues that we’re losing by people buying in other states,” Brady said in a recent Springfield campaign appearance.

Reducing the sales tax on gasoline, plus repealing the state estate tax, would open up an additional $650 million to $1 billion hole in the state’s general revenue fund, of which he’ll have to cut spending to offset, Brady said.

Quinn opposes eliminating the sales tax on gasoline.

The Senate Democrats’ 2009 income tax increase bill also included a provision extending the state’s sales tax to services, such as haircuts, that are not taxed now. Quinn testified for the bill before a House committee.

But now, Matsoff said, “Governor Quinn does not support expanding the sales tax base.”

Fee increases

Past governors have raised fees to pay for capital construction programs. In 2009, the legislature approved a $29 billion capital plan that was funded by higher taxes on alcohol; applying the sales tax to certain beverages, grooming products and candy; and increasing driving-related fees. The capital plan is also to be funded by legalizing video poker, although no revenue is currently coming from that source because the rules to implement it have yet to be worked out.

The vehicle registration fee and the cost of a driver’s license were increased by $20 and the cost of titles and commercial licenses were hiked by $30.

Brady voted against video poker and the taxes and fees that funded the capital bill but for the spending in legislation.

Brady spokeswoman Patty Schuh said Brady would seek to repeal the legalization of video poker if elected.

“It’s not a funding source that’s sustainable,” Schuh said.

Capital spending is typically funded by selling bonds backed by a revenue source. To fund future capital spending, Brady would implement “rolling bonding,” Schuh said. In other words, he would keep in place current funding sources even after the bonds they are funding are paid off in order to pay for new capital projects.

Schuh was unsure how much spending could be funded this way, but acknowledged it would mean smaller capital bills in the future. Brady will have to evaluate the status of bonds and the bond market once elected, she said.

Matsoff said “existing sources of revenue passed in 2009 are sufficient to cover both the present and next year’s planned capital program. So we don’t need to raise any fees for that purpose.”

Estate tax

Brady wants to eliminate the Illinois estate tax. Congress gradually cut the federal estate tax from 2001 until the tax was eliminated for this year. Illinois’ estate tax was tied to the federal tax until 2003, when lawmakers de-coupled the two because the federal changes would have resulted in elimination of the state estate tax in 2005, according to the Legislative Research Unit’s Tax Handbook for Legislators.

The result was that the state taxed estates worth more than $2 million in 2009 while the federal government taxed estates worth more than $3.5 million, a discrepancy Brady has criticized.

For people who die in 2010, there is no state or federal estate tax, according to the Tax Handbook. That changes in 2011 unless Congress and the state legislature act.

“If neither Congress nor the General Assembly changes the laws on estate taxation, those laws will revert to how they were before the 2001 federal law,” the Tax Handbook says.

The first $1 million of an estate would not be subject to federal taxes. Estates worth more than $1 million would be taxed at a rate starting at 41 percent and rising to 55 percent on anything over $3 million. In Illinois before 2001, estates worth more than $675,000 that were not transferred to a surviving spouse were taxed at varying rates.

“That will have a huge impact on family farms and small businesses,” Schuh said. “That will once again be a deterrent on our jobs climate and a tax hit on our citizens.”

While Brady is currently proposing elimination of the estate tax, “we don’t know what the feds are going to do,” Schuh said. “If they set it for estates over $10 million, maybe we’d take a look at it.”

Quinn has not made any proposals related to the estate tax.

Chris Wetterich can be reached at 788-1523.

Other candidates’ tax plans

The three other candidates running for governor — independent Scott Lee Cohen, Green Party nominee Rich Whitney and Libertarian Party nominee Lex Green — offer varying details of their plan for taxes on their websites:

Cohen: http://scottleecohen.com/issues/budget-taxes

Whitney: http://www.whitneyforgov.org/issues/budget and
http://www.whitneyforgov.org/issues/economy

Green: http://www.electlex.com/papers/tax_spend.php