Moody's Report: Illinois Income Tax Increase Inevitable

The title of the new Moody’s Investors Service report on Illinois state government finances says it all: “Late Budget Matters Less than Solving Pension and Revenue Problems.”

A late budget is nothing new for Illinois or a lot of other states. Even heading into its third month, the Illinois budget impasse itself — which Moody’s had expected all along — is not the state’s biggest crisis, the ratings agency says.

That may change soon, as unchecked spending threatens to build a deficit of $5 billion that will have to be dealt with in the budget.

While Illinois taxpayers welcomed the 25 percent income tax reduction that went into effect Jan. 1, Moody’s believes the decrease must be short-lived if the state is to get back on its feet. Illinois has a low tax rate among the eight states that have a flat-rate income tax and its economy is strong enough to absorb an increase, the report says.

Here are seven important takeaways from the Moody’s report.

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