(MCT) — The expiration of the temporary 2 percent payroll tax cut does indeed mean we’ll pay more to the federal government, but the pain seems doubly worse because Illinoisans never really benefited from the initial holiday, thanks to increases in the state income tax rate.
If you are employed, you and your employer each pay half of a mandated 12.4 percent of your salary to cover contributions to Social Security. Your 6.2 percent payroll tax -- “FICA” on your pay stub -- was cut to 4.2 percent two years ago, with the idea that you’d have more money to spend.
About the same time, Illinois lawmakers approved a 2 percentage point increase — somewhat masked by the reduction in the payroll tax — in the state’s personal income tax rate, from 3 percent to 5 percent, and increased the corporate rate from 4.8 percent to 7 percent.
So Illinois businesses and residents who might’ve had a fighting chance to use the federal payroll tax savings to balance their checkbooks, pay down debt or hire more employees ended up paying a lot of the savings toward higher state income taxes designed to help the state pay its overdue bills.
To pour salt in the wound, The Associated Press last year reported that the state estimated it would wind up with roughly the same amount to spend in 2015 as it had at the beginning of 2012.
A zero net gain, as the accountants say, and a darn good reason to make sure the increase is not extended past its 2015 sunset.
Freshman Rep. Ron DeSantis, a Florida Republican, speaking Friday on CNN about the payroll tax holiday, believes revenue can be raised in a better way. Any tax relief should be permanent, he said, because temporary tax measures “hurt the certainty” that individuals and businesses need.
We agree on both the state and federal levels. Illinois still is woefully behind in paying its bills, and left without a clear fix to its pension funding problem. Its residents are hit doubly hard with taxes and have little to nothing to show for it, and businesses still question whether they should stay in or move to a state that treats its businesses so shabbily.
Changes to tax rates need to be permanent, regardless of the political capital spent to make the call.
In two years, the state income tax rate is supposed to drop to 3.75 percent for individuals and 5.25 percent for corporations. Our legislators, and we as voters, must make sure that happens.
This editorial appeared in Herald & Review, Decatur, Ill., on Tuesday, Jan. 8.
©2013 Herald & Review (Decatur, Ill.)