Researchers from the Fiscal Policy Center at Voices for Illinois Children have put forward a "broad range of available revenue options" state lawmakers and Gov. Bruce Rauner could adopt to avoid deep budget cuts to crucial programs and services in the upcoming fiscal year.
A new report from the center details those possible revenue solutions, which would come through reforming the state's income, business and sales taxes as well as taxes on alcohol, nicotine and sugary beverages.
Rauner's proposed budget for the 2016 fiscal year, which starts July 1, does not call for increased taxes, but, instead, proposes significant cuts to higher education, Medicaid and other essential services as a means to tackle the state's fiscal problems.
The Responsible Budget Coalition, comprised of about 200 groups working to protect vital supports for Illinois families and communities, has called Rauner's proposed budget cuts "morally reprehensible."
"The Governor has argued that he must make cuts that damage our communities to balance the budget. This report debunks that myth," said David Lloyd, director of the Fiscal Policy Center at Voices for Illinois Children, a Responsible Budget Coalition member. "The Governor and lawmakers have another choice: they can avoid cuts by choosing new revenue to protect the future of our state."
The state faces a $6 billion budget deficit in the 2016 fiscal year. That looming budget shortfall is largely due to the rollback of the state's 2011 temporary income tax hike. On January 1, the state income tax dropped from 5 percent to 3.75 percent for individuals and from 7 percent to 5.25 percent for corporations.
Of the many revenue proposals highlighted in the Fiscal Policy Center's report, the state could generate approximately $1 billion "for every .25 percent restoration of the personal income tax rate."
If the income tax rate for individuals was lifted to 4.25 percent, for example, the state could collect $2 billion in new revenue.
Between $330 million and $770 million in additional revenue could be raised if the higher income tax rate for corporations was partly or completely restored, the researchers estimate.
Taxing some portion of retirement income is another revenue alternative cited in the report. Such a move could generate between $500 million and $750 million for the state.
Additionally, over $100 million could be raised by limiting or getting rid of corporate tax breaks awarded through the EDGE (Economic Development for a Growing Economy) and Enterprise Zone programs.
The state could also pull in between $600 million and $4.6 billion by expanding the sales tax base to cover additional services in the business, finance, technical and other service sectors. The amount of new revenue generated would depend on what services are taxed.
Extending the sales tax to internet downloads is another possibility.
"Goods like games, movies, books, off-the-shelf computer software, and music that can be purchased in stores are subject to Illinois' sales tax," the report reads. "However, if these goods are purchased online, only digital software and games are taxed. Because of a failure to extend the sales tax to all digital goods and services, Illinois loses an estimated $14 and $18 million dollars a year."
Researchers float the idea of taxing sugary beverages, like soda and energy drinks, by 1 cent per ounce. Such a tax could raise $600 million in funds that could be used to "strengthen communities by supporting health initiatives such as disease prevention services, nutrition education, physical education, and healthier school meals," according to the report.
As for raising alcohol taxes, the report states that "raising spirits by $3 per gallon (3.5 cents per drink), wine by $0.30 per gallon (1.2 cents per glass), and beer by $0.15 per gallon (1.4 cents per beer) would generate over $100 million a year," according estimates from the University of Illinois' Institute of Government and Public Affairs.
Other revenue possibilities include hiking the cigarette tax by 50 cents per pack, which could generate $175 million annually. Taxing electronic cigarettes, which are not covered by the cigarette tax, could produce between $800,000 and $38 million in new revenue, depending on the tax rate.
"If the goal is to create a stronger future for Illinois, the worst thing we can do is weaken the infrastructure of public services that a strong economy needs, like education, health care, transportation, and public safety," Lloyd said. "Relying on cuts to balance our budget jeopardizes the investments we've already made, and ruins the foundation for future prosperity."
Rauner and state lawmakers, Lloyd added, "are not helpless bystanders."
"They can choose revenue to avoid cuts that harm Illinois' families, communities, and the economy," he stressed.