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11 January 2011 By Agnes Crane

The lowflattax state is grappling with a $15 bln budget deficit that needs to be plugged. It has already used costly ploys like deferring payments and borrowing its way out of trouble. The state s citizens should now pay higher taxes before Washington considers a rescue.

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Illinois Democrats in the lame duck General Assembly proposed increasing the state income tax to 5.25 percent from 3 percent to help balance the state's budget.

The deficit, which includes pastdue payments to vendors, is estimated at $15 billion. Under the plan, companies would also see their tax rate increase to 8.4 percent from 4.8 percent a year. The temporary increases would help raise roughly $7.5 billion a year.

Newly elected lawmakers arrive on Jan. 12.

In the last two years, several states with serious budget deficits have raised their income tax to make up for revenue shortfalls. California tacked on a 0.25 percentage point surcharge while Connecticut imposed a millionaires tax on wealthy taxpayers, according to the Tax Foundation.

Illinois residents' tax burden currently ranks 14th in the country, according to the nonpartisan Tax Foundation research outfit. California ranks sixth, New York third and Connecticut first. In terms of favorable tax climates for businesses, Illinois would drop from 23rd to 35th if the new tax increase were to take affect. California, New York and Connecticut, however, would still be ranked worse.

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