Pritzker proposes federal tax decoupling to avoid wasting $200M

SPRINGFIELD, Ill. (AP) — Gov. J.B. Pritzker on Friday proposed changes in Illinois tax law that would save the state $500 million during a budget crisis.

The Democrat also froze the start of new business credits that would cost $20 million annually.

Pritzker floated the idea during the first day of the General Assembly’s lame-duck session, one of five days scheduled to end the 101st General Assembly before inauguration of the 102nd on Wednesday.

Battered by the COVID-19 pandemic, Illinois has a $3.9 billion budget deficit. Pritzker hoped to make up a chunk of that with approval of a graduated income tax that would tax the wealthier at higher rates and generate $3 billion extra a year. But voters soundly rejected that constitutional amendment in the November election.

Pritzker has threatened a widespread income tax hike that would hit all taxpayers or 15% cuts in services across the board, neither of which he has pushed, although Pritzker has adopted some cuts in spending.

“The recently announced budget cuts along with these new roll backs of corporate tax breaks are just the first steps in this budget process. More will be necessary,” Pritzker said in a statement. “We will need to scrutinize and potentially roll back other corporate tax breaks –- including those that have been on the books for many years.”

The biggest move in the governor’s current plan would involve decoupling Illinois tax law from federal law. As part of its COVID-19 relief package last spring, Congress changed the way federal tax law handles net operating losses and excess business losses. Illinois tax law is tied to those sections and would automatically reduce Illinois tax revenue by $500 million. Decoupling keeps current state law in place.

But House Republicans said the tax savings for businesses in federal law were just the relief Illinois businesses need after an economic battering from COVID-19, which has intermittently shut down large parts of the economy for much of the past year.

“This is the federal CARES act, which has broad bipartisan support, support for COVID relief, and the governor is proposing taking that relief away from business,” said Rep. Avery Bourne, an assistant Republican leader from Morrisonville. “This is just the latest in a trail of proposals by the governor (and) small business in our area haven’t seen a whole lot of relief.”

Pritzker noted that his administration has “provided hundreds of millions of dollars in support” to small businesses through federal COVID-19 relief to Illinois.

The business tax credits were signed into law in 2019 and scheduled to take effect Jan. 1. They generally allowed businesses already received credits for relocating and expanding in Illinois to claim additional credits based on wages paid for construction associated with those changes, up to $20 million.


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