State Journal-Register - Moody’s: Graduated income tax can help credit rating if used for pensions

Moody’s Investors Service said Monday that a graduated state income tax could help improve the state’s worst-in-the-nation credit rating, but the increased revenue should be used to pay down pension debt.

Gov. J.B. Pritzker, however, has said that only about $200 million in new revenue would be added to pensions from the graduated tax that his administration projected would raise $3.4 billion.

The Moody’s report said a graduated income tax would give Illinois “increased revenue raising flexibility to tackle a growing pension burden and unbalanced budget, steps critical to improving credit quality.”

“A positive outcome for the state’s credit standing would require that the new system yield substantial net new revenue, without material damage to the economy, and the new revenue be largely allocated to addressing the state’s retirement benefit liabilities on a recurring basis,” said Ted Hampton, Moody’s vice president and senior credit officer.

Critics of the graduated tax have said that it will damage the economy, causing jobs to dry up and high income earners to leave the state.

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