In his FY 2025 budget, Illinois Governor J. B. Pritzker has proposed a series of tax changes that would, on net, increase state tax revenues by nearly $900 million. These changes are primarily tax increases aimed at filling a projected budget deficit while increasing spending. The proposed changes include increases in individual and corporate income taxes, state sales taxes, and sports betting excise taxes. The only significant reduction would affect local, not state, revenues.
One of the proposed tax increases involves suspending the state’s standard procedure for inflation indexing its personal exemption. This move would essentially ‘skip’ accounting for inflation that occurred in 2022, treating taxpayers as if the record-breaking price increases they experienced that year did not occur. This would increase individual income tax collections by approximately $93 million.
Another significant proposal is to extend the Net Operating Loss Deduction Cap. This cap causes businesses to appear more profitable on paper than they are in reality, reducing their cash on hand while bolstering short-term revenues for the state. The governor has proposed extending the cap through 2027, while raising the annual limit slightly to $500,000.
The governor’s budget also proposes increasing the excise tax on sports betting operators from 15 to 35 percent of adjusted gross sports wagering revenue. At 15 percent, Illinois already taxes sports betting more heavily than most nearby states. This increase lacks economic justification and threatens to lure participants back to illicit markets.
Lastly, the governor proposes increasing the Corporate Franchise Tax Exemption. Illinois is one of 15 states levying a capital stock tax, also known as a franchise tax, whereby corporations pay an annual tax on the value of their property or paid-in capital. These taxes are economically harmful because they penalize investment in Illinois and are owed even when a corporation does not turn a profit.
These proposed changes underscore the importance of understanding tax laws and their implications. As responsible financial citizens, it is crucial to stay informed about these changes and make informed financial decisions accordingly.