Gov. Pat Quinn is considering raising the Illinois income tax by 50 percent in a politically risky bid to address one of the biggest budget dilemmas in state history, the Chicago Tribune reports.

Sources tell the Tribune that an increase to 4.5 percent from the current 3 percent tax rate on individuals would include a corresponding hike in the corporate income tax on businesses, according to sources familiar with the new governor’s preparations for his first budget address Wednesday.

The first state income tax increase in 20 years would be cushioned in part by raising the standard tax exemption up to $6,000 per person from $2,000, the sources said.

In his six weeks as governor, Quinn has broadly hinted at increasing taxes while repeatedly saying he wants to bring fairness to the state tax system, including new exemptions to help low- and middle-income families.

The governor also is expected to propose eliminating a variety of business tax breaks, possibly some of the same ones that ousted Gov. Rod Blagojevich labeled “loopholes” but failed to close.

Bob Reed, Quinn’s spokesman, declined to comment. The Democratic governor is scheduled to tell lawmakers Wednesday how he wants to fix a state budget that could be more than $9 billion in debt by July 2010 amid a sinking economy and declining revenues.

Quinn is still finishing his budget plan and sources said the size of any income tax increase or tax relief could still change. Legislators estimate a 1 percentage point increase in the personal income tax rate could bring in nearly $4 billion, but that would depend on what happens to the exemptions or other potential tax breaks.

Fee increases for license plate stickers and driver’s licenses are also under consideration by Quinn, sources said. The governor has also emphasized he wants to “cut, cut, cut” state government.

Democratic lawmakers who control the General Assembly have signaled a willingness to support higher taxes but were reluctant to propose them in the past because Blagojevich promised to veto any income tax increase. After being arrested on corruption charges, Blagojevich accused lawmakers of conspiring to remove him to clear the way for a major tax increase. Quinn and legislative leaders accused him of shifting blame for his own problems.

Quinn’s success in shepherding whatever budget plan he proposes could impact his chances to seek a full term as governor next year.

While he may claim leadership points for addressing the state’s perennial financial woes, any tax hike proposal will become ammunition for Republicans as well as fellow Democrats.

In 1989, Democrats pushed through a temporary income tax hike that later became permanent, raising it to 3 percent from the original level of 2.5 percent set in 1969. They also approved hikes in gasoline taxes, the cigarette levy and passed a new tax on computer software.

Then-Republican Gov. James R. Thompson, who had pressed for a higher income tax increase and a broader sales tax to include services, signed the compromise proposal.

Details of the way Quinn would seek to distribute the proceeds from the new revenues still were being held closely, but a move to use proceeds from the income tax to help pay for what he has projected as a $25 billion construction proposal likely would be a source of debate.

Democrats in the House and Senate want to pay for such a plan by increasing the gas tax from the current level of 19 cents a gallon.

A House committee approved an 8-cent-a-gallon increase on a party-line vote Thursday, sending a message there is strong support for paying for a construction program with higher gas taxes.

“I don’t like any taxes, but historically that’s the way we’ve done it. That’s the way we’ve paid for roads and bridges,” said Rep. John Bradley (D-Marion), the sponsor of the gas tax hike.

The motor fuel tax has not risen for about two decades and does not generate enough money to keep up with the maintenance needs for roads and bridges, Bradley said.

Senate Democrats have proposed raising the gas tax anywhere from 16 cents to 23 cents, equating it with a user fee for drivers.

Paying for construction projects with an income tax increase “is not the way to go in a very serious recession,” said Sen. Martin Sandoval (D-Chicago), chairman of the Transportation Committee.

Sandoval said the problem with trying to use income tax revenues for road construction is that a disproportionate share of money would come from the Chicago area to build roads throughout the state. The distribution of motor fuel tax revenues favors Downstate, where roads cover more miles than in Chicago, Sandoval said.

(Source: Chicago Tribune)