In one of the most deceptive speeches ever, Gov. Pritzker, on Wednesday in his combined State of the State and Budget Address, proposed outright a billion dollars in new taxes and $2 billion in new spending for FY 2025. Most media reports and statements by politicians and interest groups, however, missed a much larger and more important part of this political pandering piece of garbage speech.
With a magnanimous inflection, Pritzker suggested that to help the families of Illinois he is proposing to eliminate the one percent grocery tax. This is a tax on groceries meant to be consumed off-premises (meaning prepared food is still taxed) and medicine. When Pritzker suspended the tax in 2023, the cost-savings was said to be $400 million. Back then Pritzker said that he wanted to help families get through the period of high inflation, hence the suspension.
However, when he suspended the tax, he also backfilled the local cities and towns for the taking of this revenue. What Pritzker didn’t say was that the grocery tax is 100% remitted back to the municipality. Pritzker has no plans to backfill locals this time around.
So he isn’t really cutting taxes. Instead, he is proposing a $400 million property or sales tax increase on Illinoisans as most cities and towns are likely to increase other taxes to cover the lost revenue.
Now all of us would prefer that our local governments just find a way to live without that 1% tax, but it isn’t an insignificant amount and state legislators and the Governor have imposed numerous UNFUNDED mandates like police training, body cameras, pension obligations, union work rules, paid time off, and more that cause cities to HAVE TO spend money that they otherwise could negotiate on their own to do or not do.
I spoke with Brad Cole, Executive Director of the Illinois Municipal League (IML), a group that lobbies on behalf of towns, villages, and cities in Illinois. On their website is a Mandate Report listing the bills that impose mandates on locals. Here is a link to the 2023 report:
IML is asking municipalities to report the impact of eliminating the grocery tax. In two prominent DuPage County cities here is the preliminary impact of eliminating the grocery tax.
Wheaton – estimated cost $2.2 million, if replaced by a property tax – 11% increase
Naperville – estimated cost $6.7 million, if replaced by a property tax – 6.6% increase
Let’s look at Wheaton in a little bit more detail. Wheaton has two Jewel stores, a Mariano’s, Aldi, Whole Foods, Pete’s Fresh Market, and a Target store with groceries. These stores are mostly located on Wheaton’s edges attracting consumers from around the area. The $2.2 million is about 30% of all sales tax revenues. Eliminating this tax without a backfill means Wheaton cuts spending or imposes other taxes to make up for it.
I am all for cutting spending and that should be the first thing to do. But, given the state’s mandates – especially on union rules and pensions, cutting $2.2 million isn’t that easy.
Since we are having this tax discussion, aren’t consumption taxes better than property or income taxes?
Many Republicans have spoken out in support of getting rid of this tax. We would all prefer to have zero taxes – that’s not possible. Pritzker’s elimination of this one tax, which is estimated at $400 million, is, again, nothing more than a political stunt.
Conservative economists and public policy pundits will tell you that a consumption tax is preferable to an income or property tax. Tennessee has a high sales tax, one of the lowest property taxes, and no income tax which is preferable for taxpayers. Admittedly, the grocery tax is regressive, hitting the poor more severely than the wealthy, so this one percent tax should go away, but again the government should also cut mandates.
In Illinois, we have high taxes all around as these two articles show:
“The latest Tax Foundation report on sales taxes details how Illinois is now home to the highest combined state and average local sales tax in the Midwest.”
Read the Center Square article HERE.
Illinois STILL has the second-highest property taxes in the country.
Let’s be clear – Pritzker could backfill the taxes to cities and towns by simply cutting new spending by that amount, lowering the cost of local government by deleting mandates, or a combination of the two.
He won’t do any of that, so he is simply shifting the burden to a different tax.
There is much more shortsightedness to Pritzker’s proposal.
Sales tax rebate incentives have been widely used by municipalities to entice developers to build in their communities. According to Brad Cole from IML, he has already heard from one city in the middle of a new development that is concerned about having to stop the project if the grocery tax is eliminated. Companies, especially grocery stores, work on slim margins, so incentives matter when building a new store, and if the sales tax is gone, so is the rebate owned by the developer.
I recall, as a Wheaton City Councilman, when the Mariano’s store was proposed and approved while I was on council in 2011-2012, the expected sales tax was $700,000 annually. I’m certain it is much higher now, 12 years later, and with higher prices under Biden’s inflation.
Pritzker’s response to cities bemoaning the lost revenue was that they could just put on their own local sales tax and collect it that way. That may work, but only for home-rule municipalities, and it completely negates his grand pronouncement that he is providing tax relief.
Again, I’m all for getting rid of taxes, but this is a shift and not smart. How about a hard 1% property tax cap like Indiana and California have? Why doesn’t he try something meaningful? Because Pritzker doesn’t THINK BIG, he thinks small.
One more thing Pritzker didn’t think about, and from what I can tell no one else either, is how the elimination of this tax will impact CTSC?
What’s that?
After selling off the Skyway for $2 billion and their parking meters for $1 billion, in 2017 Chicago put up their sales tax revenue for the next 30 years as collateral for borrowing.
Chicago formed the Sales Tax Securitization Corporation (STSC) and presently, according to their latest financial reports, have current bonded indebtedness $4.449 Billion under this STSC. In 2022, Chicago collected about $870 million in sales tax revenue. It is difficult to understand how much of that was sent to the STSC and how much was due to the one percent grocery tax, so the impact of eliminating this tax going forward is unknown.
In the notes of a recent STSC bond offering document, it clearly states that once the sales tax revenues are sold, they cannot be used for any other purpose.
While the grocery tax is not the only sales tax the city collects, it is still not insignificant either. The bond offering documents also have a caveat in them stating that even if state legislation changes the sales tax remittances via legislation, Chicago’s STSC is protected from that change. However, it would be interesting to know whether or not the state’s elimination of the grocery tax threatens future bond offerings. That may actually be a net positive for taxpayers, by the way.
Just 4 days ago, the Chicago Tribune wrote that Mayor Johnson is looking at borrowing $1.25 billion from either general obligation bonds or STSC bonds, which would cost the city $81 million a year.
The bottom line is that Pritzker’s elimination of the grocery tax is a pandering gimmick that will likely simply shift the tax burden instead of eliminate it.
Pritzker Nullifies Quinn’s Income Tax Exemption Increase Again
Pritzker also laid out plans to hold the exemption amount flat in this year’s budget which is an income tax increase.
This NPR report explains that last year’s budget eliminated the automatic inflation adjuster to the standard exemption enacted under Gov. Quinn.
Prior to the 2023 tax year, the standard exemption increased 10 times under an automatic escalator tied to inflation put into effect in 2012 by former Democratic Gov. Pat Quinn, who served as the state’s chief executive between 2009 and 2015. The change roughly a decade ago had overwhelming bipartisan support in the legislature.
But the standard exemption will remain flat this tax-filing season at $2,425 for those who declare adjusted gross income of $250,000 or less individually or $500,000 or less for married couples.
State revenue officials say more than 11 million Illinoisans claim the standard exemption on their taxes each year. Because of the inflation-indexing mechanism, the exemption has risen from $2,000 to $2,425 since 2011.
Had lawmakers and the governor not put a pause on that inflationary adjustment, the standard exemption would have stood at $2,625 for tax year 2023. That $200 increase would have marked the largest jump in the exemption since the inflationary index was enacted.
That’s because the nation’s consumer price index increased 8% in 2022 – the largest inflationary move since 1981.
Then, according to this NBC story, this year Pritzker’s plan also is a net tax increase by not fully indexing the exemption to inflation. Pritzker’s plan would mean that the exemption would be $225 smaller than originally intended, which could result in a small increase in tax bills for state residents because of increases to their taxable income.
On the spending side, Pritzker’s budget address touted increased spending on preschool with a goal of funding universal preschool for all by 2027.
State Rep Brad Halbrook shared information with me about how much we currently spend on that category. According to his information, in over 39 different funds that are a mixture of childcare, early intervention programs, preschool, and preschool construction grants (the state spent $170 million building preschools in last year’s budget) overall, spending in those categories was over $4.438 BILLION! The federal government funded $3 billion of that effort.
In this budget address, Pritzker says that, in total, 248,000 kids were served between preschool and daycare. That’s an expenditure amount of $17,895 per child no matter what program they were in.
We spend a lot on GOVERNMENT PRESCHOOL! I helped provide the numbers behind this story in 2018 that shows Wheaton- Warrenville CUSD 200 spent $17,220 per child on 4-year-old preschool back then. It’s an outrageous amount!
And then there is this – new reporting shows that preschool may not only NOT be beneficial but may be detrimental. Read the links in this Real Clear Education article to read more. I am assuming that for special needs children, there is still a positive effect from preschool.
Much more reporting on Pritzker’s address is needed to point out his other misdirections.