Reducing gas tax, prepping for future shortfalls among late budget sticking points

SPRINGFIELD, Ill. (Capitol News Illinois) — Illinois lawmakers are days away from passing a roughly $56 billion fiscal year 2027 budget, but many are still fighting to have their priorities included as negotiations near the end.

Republicans want to reduce the size of the budget and lower taxes, while some Democrats are seeking more taxes on businesses and billionaires. Others are looking to maintain state programs, fearing future budget holes and social service cuts in the coming years.

The budget became more complicated earlier this month when analysts for the General Assembly and Gov. JB Pritzker’s budget office lowered revenue projections for the upcoming fiscal year that begins July 1. The revisions by the governor’s office revealed a $149 million gap between what Pritzker proposed spending and the amount of revenue the state will have to support it — and that includes $728 million in new taxes and revenue changes proposed by the governor.

Though the clock is ticking toward the Sunday night deadline, negotiations over the final product are still happening behind the scenes.

Read more: Illinois budget picture tightens in federal stretch amid economic uncertainty | Illinois legislators gear up for final budget talks

“When we look at Springfield, a week can be a month and a day can be a week,” Sen. Robert Peters, D-Chicago, said at a news conference on Wednesday. “And so a lot can happen and a lot of conversations can happen, but I can say, you know, my guess is this is going to be a tight vote and a tight conversation.”

Gas tax

Gas prices have topped $5 per gallon in parts of the state, and some lawmakers are calling for a temporary reduction in motor fuel tax to provide relief to drivers. Pritzker suggested on Tuesday that lawmakers could suspend the automatic gas tax increase of about 2 cents per gallon that happens annually on July 1.

“We for sure should be looking at what we can do to diminish the impact of high gas prices,” Pritzker told reporters in Champaign

He cautioned that lawmakers must consider how pausing the increase would impact road construction in the state, which is funded by the gas tax. But he said, “we have enough here so that we could make some sort of pause.”

The Road Fund had about $4.2 billion as of Wednesday, according to the comptroller’s office. Lawmakers also suspended the inflationary increase to the gas tax in 2022 for six months during a period of high inflation.

Relief for drivers would likely be minimal, however. The tax is set to increase by less than 2 cents per gallon on July 1 to about 50 cents per gallon, according to the Department of Revenue.

Republicans are pushing for suspending the sales tax on motor fuel sales, which they argue amounts to double taxation at the pump when combined with the gas tax and would provide greater relief to drivers.

“The governor has a real initiative that he could show ‘I care about the cost’ by freezing the sales tax and he hasn’t done that yet,” House Republican Leader Tony McCombie, R-Savanna, told Capitol News Illinois.

McCombie suggested the large balance in the Road Fund should be used to fund public transportation if the sales tax on gas is suspended. That sales tax largely funds public transportation beginning this year and closed significant budget gaps for that service.

“If there is an account in government that has exceeded their expectations, the money should go back to taxpayers and this is a way for that to happen,” she said.

Digital ad tax

But many Democrats want to raise upwards of $4 billion in new revenue through tax hikes and eliminating tax credits for job creation. One idea that nearly made it into the budget last year and could have momentum this year is a tax on businesses’ digital advertising revenue that proponents say would generate more than $700 million.

Business leaders warn such a tax will hurt small businesses, which rely on digital advertising to reach consumers.

“We understand the need to close budget gaps, but a digital ad tax would make it harder and more expensive for businesses to use digital and social media ads to find customers, sell products, and grow their companies,” Chicagoland Chamber of Commerce CEO Jack Lavin said in a statement. “The big tech companies aren’t the ones who are going to be hurt by this.”

Rep. Norma Hernandez, D-Melrose Park, disputed that characterization as her bill would only tax profits from digital ads over $150 million.

“This is not a tax on small businesses; this is not a tax on working people,” she said at a news conference. “This is a proposal focused on the largest tech corporations. Corporations making enormous profits off our personal data, our online activity and targeted advertising generated from Illinois residents.”

None of the $4 billion worth of progressive revenue ideas were part of Pritzker’s budget, although he did propose a $200 million tax on social media companies based on the number of users the platforms have in the state.

No Democratic lawmakers at Wednesday’s news conference said their budget vote would be contingent upon the new revenue streams.

“There is one vote that each one of us in this chamber have,” Sen. Karina Villa, D-West Chicago, said. “We each have a button and we will make the decision individually.”

Future years

One reason many Democrats are advocating for tax increases now is because more significant budget challenges are on the horizon.

The state could face a deficit up to $1.5 billion in fiscal year 2028 under current taxing and spending policies, according to February data from the governor’s office. Much of that is driven by changes from Washington that reduce social services or pass costs for those programs to the states.

“In Washington, we just decided to cut Medicaid by a trillion dollars … over the next five years, so we’re not making it any easier for you as members of the legislature,” U.S. Sen. Dick Durbin said in an address to the General Assembly on Wednesday.

Many Democrats hope the state can fill some of those social service gaps and say that’s why more revenue is needed now.

“We think it’s unacceptable to sit on our hands and not begin to make progress to change our unfair tax system at a time where were being attacked by the federal government and at a time where the cost of living is choking families,” Rep. Lindsey LaPointe, D-Chicago, told Capitol News Illinois. “We can’t wait to start to bring in progressive revenue.”

Democrats are also getting pressure from outside groups.

“How do you close the deficit? You tax the rich,” Chicago Teachers Union Vice President Jackson Potter said at Wednesday’s news conference.

Senate Republicans pushed back on the notation that the state needs more money.

“Where does it end? How much more do you need? When does it stop?” Sen. Chapin Rose, R-Mahomet, said in response.

Republicans want less spending, taxes

Senate Republicans have been involved in “amicable and courteous” conversations, Sen. Don DeWitte, R-St. Charles, told reporters on Wednesday. But he’s worried they’ll shortly get locked out of negotiations.

“If history is any guide, Republicans will not see the thousands of pages of final budget language until late on the final day or during the overnight hours of May 31,” DeWitte said.

McCombie would also like to see less spending and lower taxes. She said her House GOP caucus has only been briefly part of high-level budget talks with Democratic counterparts. She said the Democrats’ calls for new taxes flies in the face of their promises of pushing legislation this spring to make life more affordable.

“It’s really quite amazing when they talk about affordability,” she said. “It’s not affordable for people in Chicago. And that’s one of the things about increasing the size of government, because they want people to rely on government, and it’s not sustainable that way.”

Republicans also want more financial help for local governments.

“We can’t continue to try to fund our way through weed and gaming in local municipalities,” McCombie said.

(Reporting by Ben Szalinski, Capitol News Illinois)

Capitol News Illinois is a nonprofit, nonpartisan news service that distributes state government coverage to hundreds of news outlets statewide. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation.

This article first appeared on Capitol News Illinois and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.