On Wednesday, Illinois Gov. Bruce Rauer essentially handed his budget duties to those forging the grand bargain in the Illinois Senate, but used his budget address to set a few parameters and restate his positions.
He underscored that tax increases cannot be imposed without significant reforms to improve the job climate. He said he cannot accept proposals to increase sales taxes on food and drugs.
And he said this: “we cannot tax people’s retirement incomes.”
We say this: “Why not?”
The feds tax retirement income. Illinois is one of only three states that do not.
Instead of some lukewarm reforms and taxing everybody in the neighborhood of 5 percent, what about just closing the loophole that lets retirees escape paying state income taxes? That would put another $2 billion in state coffers and use retirement income to generate a partial fix for our $130 billion state pension deficit.
Yes, we can hear the AARP screaming now about balancing the state budget on the backs of those with fixed incomes. True dat. But we could build in some protections for lower retirement incomes, say taxable after $35,000.
Illinois has 350,000 people drawing pensions, and of that more than 14,000 are drawing public pensions of greater than $100,000 per year. How fair is it to ask the average Illinois family to pay an additional $745 in state income taxes when so many are paying zip?
Letting retirement income escape state taxes is truly a loophole that lawmakers in 1983 giddily and popularly passed, sort of like the free bus rides for seniors regardless of income.
Pain is coming in Illinois. Taxing retirees and selling the Thompson Center in Chicago are tiny splinters to be removed before amputations are necessary.