SPRINGFIELD – A bill approved by Governor JB Pritzker to remove expanded tax deductions for businesses established under the CARES Act was not passed in the lame ducks session.
While Pritzker said he was confident there will be a vote at the upcoming regular session, Republican lawmakers are raising concerns about the impact the bill would have on small business owners, potentially affecting 440,000 taxpayers across the state.
Some Republicans, who have called the bill a “tax hike,” also question whether there is enough time to make significant changes to tax law, with tax season only weeks away.
A spokesman for the Treasury Department said in an email that it was “optimal” to pass the decoupling laws before filing tax returns because taxpayers have not yet filed a tax return.
“The 2020 tax return season will not open until February 12, but the opening of the season does not preclude the passage of laws after that date,” wrote DOR spokesman Terry Horstman.
Rep Steve Reick, R-Harvard, said time is running out for lawmakers to pass this bill, especially since the Senate on Thursday canceled its scheduled session starting Jan. 26.
The House is expected to meet the week of February 2nd and both the House and Senate are expected to meet the week of February 9th.
“We’ll look from mid to late February before any of it can be put to rest,” Reick said during a Zoom press conference on Friday.
The proposed bill would “decouple” the Illinois Tax Act from federal tax changes contained in the CARES Act that allow extended income deductions to be recognized by business owners as net operating losses, repatriation losses, or excessive business losses. This legislative measure would bring state tax legislation in line with previous years.
Pritzker initially estimated the bill would save $ 500 million in government revenue, but that number rose to $ 1 billion when it was put to the vote in the House of Representatives early that morning on Jan. 13.
According to Horstman, the broad decoupling estimate stems from the fact that IDOR cannot determine exactly what taxpayers could do with net operating losses or excessive business losses.
He said the department’s research department compiled the revenue impact estimates and “calculated numbers based on the tax laws in force at the time and the actions taxpayers might take when filing their tax returns.”
Pritzker and Democratic lawmakers, who have backed the measure, argue that there is a need to prevent government revenue from shrinking more than $ 500 million in the current fiscal year, reducing the state’s budget deficit by $ 3.9 billion is increased.
Answering a question during his press conference on Friday, Pritzker said decoupling was “a pretty normal move,” describing the tax rules of the CARES act as a massive tax cut for some of the largest companies.
“What now (former President Donald Trump and the Republicans of Congress) did was to affect government revenues in the United States, which is why 26 states are decoupling and another nine states have already been automatically decoupled, but other states that have no income from taxes were not affected by the decoupling, ”said Pritzker.
He accused the Republicans in the legislature of failing to propose a budget balancing plan.
“And now they are proposing to blow maybe a half-billion dollar hole in next year’s budget,” said Pritzker.
Reick said the General Assembly could find ways to cut the deficit through spending cuts rather than raising taxes for small businesses already injured from the COVID-19 pandemic.
“I think if we looked at each department, we could find areas that could be shortened,” Reick said, adding that he was still interested in the data from Pritzker’s September 2020 request when he asked his agency directors to cut spending by 5 percent each time.
Rep. Mike Marron, R-Fithian, said he opposed a tax hike until lawmakers can cut spending.
“And if you commit to spending more while you are already facing a very large deficit, no one is showing an appetite for financial responsibility right now,” Marron said during the press conference. “I’m not even ready to discuss tax hikes until someone actually acts like they want to approach the budget with some constraint.”
During the press conference, Reick, Marron, and Rep. Mike Murphy, R-Springfield, criticized the governor and the Treasury Department for failing to present the bill immediatelyely after the CARES law made these changes to federal tax regulations in March.
A spokesman for the Ministry of Finance did not answer a question as to when the Ministry became aware of the extended federal deductions enacted in the CARES Act and the need for decoupling.