Chicago real estate owners are going to feel this one.
Illinois Governor Pat Quinn has passed the largest income tax increase in state history.
Effective immediately, Illinois residents will now have to fork over 5 percent of each paycheck, a 66-percent increase from the previous 3 percent the state withholds.
That would mean a family with a $40,000 household income would lose approximately $800 more a year.
Or, in simpler terms, an Illinois resident who owe $1,000 in state income taxes would now owe $1,666 at the new rate.
The corporate tax rate will go up as well, from 4.8 to 7 percent.
The new money is being raised to pay off the $15 billion deficit Illinois owns; the new taxes should generate about $6.8 billion a year.
Approving the massive tax increase was the last act of the 1996 class of Illinois House and Senate members before the new legislature took over on Wednesday.
“We have just come through the worst economic crisis in our lifetime…and we have not paid our bills,” Senate President John Cullerton, D-Chicago, said before the Senate vote. “We are going to have to cut…even with this tax. We’re going to have to spend less money then we have in the last two years. And it’s going to be tough. But we are going to have our bills paid.”
The tax increase, which comes with a strict 2 percent limit on state spending, is slated to drop down after four years to 3.75 percent. The corporate tax rate will fall to 5.25 percent.
The good news is that the original plan was to increase the personal tax rate by 75 percent. And, even with this increase, we are on the low side. Nearly 30 states — including nearby Wisconsin, Missouri and Iowa — have rates above 5 percent.