Illinois Income Tax Plan Draws Ire

CHICAGO - At Atlas Tool and Die in Lyons, Ill., workers are baffled by state lawmakers.

"Why take it out on us?" one worker asked. "We're barely making it now as it is."

It's a tough question, reports CBS News correspondent Dean Reynolds.

One state senator was overcome early Wednesday before the vote to increase taxes 66 percent.

Gov. Pat Quinn, a Democrat, said it had to be done.

"It's important for this government not to be a fiscal basket case," Quinn said.

Forty-six out of 50 states face huge budget gaps at a time when the national debt is also skyrocketing. A CBS News Poll out Friday shows more than three-quarters of Americans would rather cut spending than raise taxes to lower those deficits.

Poll: Americans Split on What to Cut

To close a deficit of $15 billion, personal income taxes are rising in Illinois from the current three percent to five percent.

In Chicago, the Woolford family expects to pay $1,000 to $2,000 more in taxes.

"Really?" asked Suzanne Woolford. "Is that really how we're going to solve the state budget?"

Corporate rates go from 4.8 to 7 percent. That could cost Atlas Tool and Die $50,000 a year.

"That's one employee, that's another piece of equipment, that's a payment on a machine that could be used to make us more competitive," said Zachary Mottl, the director of development at Atlas.

His company is considering a move to Indiana, whose government recently poked fun at Illinois.

"It's like living next door to the Simpsons, you know, the dysfunctional family down the block," Indiana Gov. Mitch Daniels joked on a radio show.

Wisconsin and New Jersey are both telling Illinois companies to move there. Yet both have higher tax rates.

In fact, Illinois corporate taxes rank in the middle nationwide, while breaks and loopholes permit two-thirds of businesses to avoid them. For individuals, the hike in income taxes - again in the middle of the pack - will be balanced by a cut in the federal payroll tax for social security.

But raising taxes in an anemic recovery is a risk.

"You run the risk that you could retard growth in the state," said James Bianco, who owns an economic research firm.

Will Illinois' Tax Increase Drive Away Jobs?

Even these higher tax rates will not be enough to close the Illinois budget deficit. So the growth of government spending will be capped at two percent for the next four years. And that means less money for schools, for hospitals and for law enforcement.
  • Dean Reynolds

    Dean Reynolds is a CBS News National Correspondent based in Chicago.

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