Government Affairs Roundup
“Your Timely Roundup of Local, State, and Federal Updates”
Chamber members:
Good news on two items from our Chambers All In for Economic Recovery platform. The issue of the Minimum Wage Tax Credit has been picked up in bill form and the same can be said for the extension of the Edge Tax Credit. More on those two bills and their language next week. Until then, enjoy today’s roundup below.
*Government Affairs Roundup brought to you by CITGO & Silver Cross Hospital*
Return to Action – In Person
Gov. JB Pritzker will give his State of the State address Wednesday to a live audience in Springfield. The House announced yesterday that lawmakers would return to the state capitol next week for in-person meetings. It’s a signal that life is returning to some normalcy. Masks and Covid testing will be part of the routine.
Because seating is limited, it’s still a better bet to tune in to live streams of House and Senate floor debates. Check out the General Assembly’s website.
Lawmakers have been busy this week working to meet today’s deadline for filing legislation.
And they’ve been meeting remotely to plan their agenda for a legislative session that’s being abbreviated to allow lawmakers to get on the campaign trail. Instead of wrapping up work at the end of May, the last day of the session is April 8.
Can they do it? The answer is yes because it’s a midterm election year and no one wants to get bogged down in controversial legislation before campaign season truly kicks in. It doesn’t mean they aren’t tackling important issues. The state Senate has been convening sessions with the entire Democratic caucus on a range of issues, including public safety, college affordability, tax relief, and economic development. The goal is to come up with a package of bills within each of those issue areas and move them forward. “Thoughtful and substantive” is how the discussions were described.
Lawmakers appear poised to extend an early-payout program that’s helped trim the state’s huge unfunded liability
It looks like state lawmakers are preparing to roll over one of the few initiatives that has taken a decent bite out of state’s huge unfunded pension liability.
Pending in the House—and on a “short debate” fast track to passage—is a measure sponsored by Rep. Bob Morgan, D-Highwood, that would renew a pilot program in which retirees covered by Illinois’ four big retirement funds can cash out early, taking a lump sum up front in lieu of either their entire pension or, more typically, annual guaranteed 3% compounded cost of living increases.
Taking a buyout gives retirees their money early, either to invest on their own or use for other purposes. But it also saves the state money since participants only receive a fraction of what they’d get if they waited, generally 70 cents on the dollar.
The current program began in 2019, funded by a $1 billion state bond issue, and has proven to be a success, according to Morgan and officials such as Tim Blair, executive director of the Illinois State Employees Retirement System. “It’s very popular,” says Blair, whose system so far has paid out $250 million in upfront lump sums, reducing unfunded liability to about $325 million.
In the state’s funds as a whole, $530 million has been paid out, reducing unfunded liability by around $800 million, says Morgan. That means contributions by taxpayers have been reduced by about $90 million a year, since the funds need less money. Morgan’s bill would extend the program by another two years, to 2026, and authorize another $1 billion in funding, since the first $1 billion could be gone by yearend.
After years in which workers were told the cash-short state might have to cut their benefits, the new program “does exactly the opposite,” Morgan told the House Committee on Personnel and Pensions, which unanimously cleared his bill for action by the full House. “There’s some people who would rather have cash in their hands (now) . . . rather than 20 or 30 years down the road.”
Of course, the state still has $130 billion in total unfunded pension liability. But if round two of this program proves as successful as round one, maybe they ought to expand this idea.
More Springfield News
Elsewhere in Springfield, Illinois’ Edge tax credit program, the main weapon in the state’s arsenal of job-creation incentives, is up for renewal, due to expire on June 30. Death is not likely. Insiders say the program almost certainly will be renewed and given a new lease on life, probably with few if any significant changes.
And Springfield Republicans continue to work the crime issue really hard. Look for House GOP Leader Jim Durkin to unveil legislation that would give victims of violent crime a bigger say in whether their attackers are released on parole.
SALT change likely to be cut from bill
Senate Democrats say a proposal to raise the cap on state and local tax (SALT) deductions, a top priority of Senate Majority Leader Charles Schumer (D-N.Y.), is likely to be cut from the revised Build Back Better Act. Senate Democrats who were involved in negotiations over the bill before Sen. Joe Manchin (D-W.Va.) blew it up last month say there’s simply not enough room for the expensive tax change, which Republicans argue would benefit wealthy suburban households in blue states.
“Yeah, I think that’s dead,” said one Democratic senator, who requested anonymity to summarize early discussions about changing the bill to win Manchin’s support. A second Democratic senator familiar with negotiations on the tax provisions of the legislation said Manchin has signaled to colleagues that he’s not a fan of changing the tax break.
“He doesn’t like the SALT” fix, said the second lawmaker. It’s a blow for Schumer, who is up for reelection this year and pledged in 2020 to make repeal of the cap on SALT deductions a top priority if Democrats won control of the Senate. “If I become majority leader, one of the first things I will do is we will eliminate it forever,” he said at a press conference in Long Island in July of 2020.
Pulling the SALT fix out of the legislation also will make it tougher to pass the legislation through the House, where last week three Democrats from New York and New Jersey insisted they won’t support any bill that doesn’t raise the $10,000 cap former President Trump imposed on SALT deductions in 2017. “SALT remains a top priority. We support the President’s agenda, and if there are any efforts that include a change in the tax code, then a SALT fix must be part of it. No SALT, no deal,” said Reps. Josh Gottheimer (D-N.J.), Tom Suozzi (D-N.Y.) and Mikie Sherrill (D-N.J.) in a joint statement. But opponents of lifting the SALT cap were quick to note that the number of House Democrats threatening to tank the bill over the issue is dwindling as the realization sinks in that their party may not be able to pass any version of Build Back Better.
Critics grumble that raising the cap on SALT deductions runs counter to what they say is the main political rationale for passing the legislation: addressing wealth inequality. Democratic senators say that passing a SALT fix becomes a much heavier political lift in a smaller budget reconciliation package, especially if it crowds out other priorities.
“The smaller the bill gets, the harder it is to squeeze something in,” said Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center. “If they do put something in with SALT, it’s likely to be much smaller than what they were talking about before.”
Another problem is that Senate Democrats can’t agree how to structure the change and at what income threshold individuals and families should no longer be able to claim deductions. Some proponents now suggest it might be better to simply wait for it to expire after 2025 instead of accepting a compromise that would extend some version of it for another 10 years and leave many of their constituents dissatisfied.
“Under current law, [the cap] expires soon,” said Sen. Ben Cardin (D-Md.), a strong proponent of repealing the SALT cap. “That relief is coming, and some of the proposals I see eliminate that date.” Some Democratic senators are warning there’s no way they’ll accept SALT relief in lieu of the more popular enhanced child tax credit, which expired last month.
“The problem that the Democrats have here is not only does SALT relief cost a lot of money, but it is extremely regressive,” Gleckman said. “We looked at a number of versions of this. We looked at an $80,000 cap, we looked at a $25,000 cap, we looked at a $400,000 phaseout … and there are real significant differences, but all of them are extremely distributionally regressive. All of them largely benefit the highest-income people, no matter how you do it.”
Manchin has declined to say publicly how he feels about Schumer’s push to change the SALT cap, which would be a major benefit for New York, where top income earners pay state tax rates of between 9.65 percent and 10.9 percent. Asked by The Hill last month what he thought about a proposal to raise the SALT cap, Manchin only chuckled and punted the question over to his colleague, asking Sen. Mark Warner (D-Va.), an outspoken critic of the idea, what he thought of it.
Warner acknowledged that allowing wealthy individuals and families to deduct more of their state and local taxes would be popular in areas of his state but said he worried about the fiscal impact. “Even though my state would be a beneficiary of a more generous SALT provision, since we’re not able to — unfortunately — roll back the Trump tax cuts, it would be a little ironic to give folks in the $700,000 to $800,000 range a tax cut in this bill,” he said.
Manchin announced last month that he couldn’t vote for the version of the Build Back Better Act then under discussions because it crammed in too many spending priorities and set unrealistically quick expiration dates for likely popular programs — such as the enhanced child tax credit — to keep the 10-year cost estimate of the proposal below $2 trillion.
Democratic policy experts now think the Build Back Better Act could get shrunk down to $1.5 trillion to satisfy Manchin’s fiscal concerns.
Illinois SALT Cap Views
The Illinois congressional delegation is thus far standing firm in its bid to repeal the $10,000 cap on state and local tax deductions—albeit strictly along party lines.
To review, the law put a $10,000 cap on the amount taxpayers can deduct from federal returns for their state and local tax payments, now commonly referred to as SALT deductions. In short, while the Trump tax cuts benefited the richest Americans, Republicans gave something back by targeting the richest taxpayers in blue states where state and local taxes were high, with the presumption that the revenue was being spent on liberal social programs.
What Republicans perhaps didn’t anticipate was that SALT would become a pocketbook issue in the suburbs, where the GOP has lost voters in recent elections. Many well-to-do homeowners believe it leaves them open to double taxation. Although former Rep. Peter Roskam helped write the law for those 2017 Trump tax cuts, current Rep. Sean Casten made SALT a prominent issue in his 2018 victory.
A 2018 report issued by Chicago-area Democratic representatives, using data compiled by the Institute for Taxation and Economic Policy, found that 500,000 metro households felt the pinch to some extent, including 71,000 of 170,000 homeowners in the 6th District, where Casten unseated Roskam and is now trying to hold off Rep. Marie Newman after redistricting.
Three years ago, as they took office, Casten and Rep. Lauren Underwood, who had also just unseated a Republican in the 14th district, put out a SALT news release stating: “Working families are being unfairly double-taxed.” Later that year, Rep. Bill Foster echoed: “This is double taxation, and it is wrong.” Underwood has also argued that the SALT cap serves to discourage local investments in education.
Rep. Jan Schakowsky of Evanston is also strongly in favor of repeal. “Congresswoman Schakowsky has voted on several occasions in support of lifting the SALT cap, most recently as part of the House Build Back Better Act,” said spokesman Miguel Ayala on Tuesday. “She considers this to be one of the most meaningful votes for Illinoisans she has taken in her career, and as such one she is extremely proud of. She believes there’s no reason this policy should crowd out any others that were included in the House-passed Build Back Better bill. By lifting the SALT cap, we are undoing the Trump/Mitch McConnell/Paul Ryan tax increase targeted at middle-class and working families in blue states and municipalities.”
For them, it’s a fairness issue. Money sent to state and local governments to pay income and property taxes should not then be subject to taxation at the federal level—at any amount. But repealing the cap has threatened to open a divide between Democratic progressives and traditional liberals. For progressives like Sen. Bernie Sanders of Vermont it’s also a fairness issue, in that if he insists that the richest Americans pay more in taxes, that also goes for Democrats in that group. He’s suggested repealing the SALT cap only up to household incomes of $400,000, citing President Biden’s like-minded campaign pledge that he would not raise taxes on those earning up to that amount.
According to a release put out by Rep. Raja Krishnamoorthi in 2017, just before the vote on the Trump tax cuts, the average Cook County homeowner paid $4,200 a year in property taxes, $5,000 on average in Kane County and $6,600 in DuPage. Again, that’s the average, and more than four years ago; a home doesn’t have to be much above average to close in on that $10,000 cap even before a family starts paying state income taxes.
The plan remains mired in the Senate, where a year ago Tammy Duckworth and Dick Durbin of Illinois introduced repeal legislation.
“The Republican Trump tax scam was essentially a giveaway to large corporations, the wealthy and well-connected—all while Illinois families were forced to pick up the tab,” Duckworth said. “It’s time to reverse the ill-conceived state and local tax deduction cap and stop hardworking Illinoisans from being taxed twice on their hard-earned income.”
“We must take real steps to help Illinois families by repealing the cap on state and local tax deductions, especially as we face economic uncertainty during this deadly pandemic,” Durbin said. “Sen. Duckworth and I have introduced the SALT Deductibility Act so Illinoisans can get the full tax break they deserve.”
On Tuesday, staffers for both said they have not moved off that position, even as Build Back Better negotiations continue in the Senate.
Economic News
The Federal Reserve on Wednesday gave every indication it will soon raise interest rates for the first time in more than three years as part of a broader tightening of historically easy monetary policy to combat inflation.
The central bank’s policy making leaders said a quarter-point increase to its benchmark short-term borrowing rate is likely forthcoming, and analysts said they expect a series of rate hikes to begin in March. It would be the first rise since December 2018.
Chairman Jerome Powell told reporters the Fed wants its tightening process to be “orderly and predictable,” believing the central bank can move assertively without harming its goal of “another long expansion,” noting that risks continue to be COVID-19’s impacts, a tight labor market, emerging tensions in Eastern Europe and especially inflation-aggravating supply chain bottlenecks, which Powell said emphatically are “not making much progress.”
“I think there’s quite a bit of room to raise interest rates without threatening the labor market,” he added. The chairman said the Fed had not made decisions about the size and frequency of rate hikes ahead, adding that those discussions are to come. “This outlook is quite uncertain and we’re going to have to adapt,” he noted.
Stay well,
Mike Paone
Executive Vice President
Joliet Region Chamber of Commerce & Industry
mpaone@jolietchamber.com
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815.727.5373 direct