+ REBOOT
ILLINOIS
PROGRESSIVE VS. FLAT INCOME TAX RATES TABLE OF CONTENTS
Introduction ______________________________________________________________ page 2
Flat Income Tax? Progressive Tax? No State Income Tax? A Nationwide Overview ____ page 4
Dem Tax Plan Will Punish Business for Success, by David From ___________________ page 5
Illinois' Flat Tax System: Outdated, Unfair, by Ralph Martire______________________ page 6
“Progressive Tax” Is Code for “Tax Increase” by John Tillman ____________________ page 8
Amendment Sponsor Progressive Tax is Fair, by Naomi Jakobsson ________________ page 10
Supporters of Progressive Tax Have a Long Road Ahead, by Matt Dietrich __________ page 12
Income tax debate finally taking center stage, by Reboot Illinois ___________________ page 13
Let's Talk Taxes Infographic, by Reboot Illinois ________________________________ page 14
New Fair Tax Resolutions, Same Old Questions, by Reboot Illinois ________________ page 15
Reboot Illinois is dedicated to involving Illinoisans in the key challenges facing our
state.
Illinois needs a fresh way to inform and involve our citizens – too many of whom feel powerless to address
the state’s biggest problems. Through social media, an interactive website and email digests, Reboot Illinois is
a community where citizens can speak up about the issues of the day and work together to drive reform
and improve the quality of life for all Illinois citizens.
Reboot Illinois features:
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
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Aggregated news stories from news outlets and blogs across the state
Analysis and opinion from elected officials, policymakers, and citizens
Original content, such as infographics and opinion pieces
Full social-media integration that allows reform-minded citizens to connect with each other
Illinois needs reform in four critical areas – and real change depends on people being
informed, engaged, and speaking up.
Reboot our state finances. We are paying more and getting less. Illinois raised taxes by 67% in 2011,
making us one of the most taxed states in America. Yet we have little to show for it. Pension costs are
crowding out essential services for the state, and hard-working taxpayers simply can’t afford to pay
more.
Reboot our jobs and business climate. We have gone from one of the best to one of the worst
states in which to do business (Fact: we now rank 48th in the nation). Illinois businesses, jobs, and
residents are fleeing the state (Fact: we led the nation in job losses in 2011). Over the past 15 years,
Illinois has seen more than 800,000 residents leave the state in search of better opportunities, taking
$26 billion in taxable income with them. That amounts to one taxpayer leaving Illinois for a better future
every 10 minutes of every day. We need to restore a business and jobs climate that keeps our
communities vibrant and our families together.
Reboot our schools. In the past decade, spending per student has increased by 45 percent, yet student
achievement has stagnated, our schools don’t have the resources they need and our students aren’t
getting the quality learning they deserve. Our children have the right to receive an excellent education
regardless of their ZIP code or how much their parents make.
Reboot our government.
Illinois has a long history of corruption, waste, and graft. Hard-working
taxpayers have carried the financial burden of these abuses. We deserve an accountable, responsible,
efficient and effective government run by the people, for the people.
Because earning and keeping our readers’ trust is paramount, our mission demands the highest standards of
integrity and editorial independence. Our goal is to inform people so that they can independently make
judgments and take action to improve Illinois.
rebootillinois.com
2
Reboot Illinois is uniquely positioned at the intersection of information and engagement:
Reboot Illinois is a non-partisan forum for concerned citizens
who want to restore Illinois to greatness.
Using social media channels and interactive content, Reboot
Illinois enables direct discussion, engagement and action by
citizens on the critical issues facing our state.
Our goal is to facilitate the kind of engagement and citizen
action that will drive reform and improve the quality of life
for all Illinois citizens.
About Us
Madeleine Doubek
Chief Operating Officer
Madeleine Doubek is Chief Operating Officer of Reboot Illinois. She was the former
Assistant Vice President/Executive Editor of the Daily Herald. An award-winning
journalist, Madeleine served as the Daily Herald's political writer and editor for 10
years and also led the paper's project and investigative work. A Chicago native who
lives in Des Plaines, Madeleine holds a bachelor's degree from Eastern Illinois
University where she majored in journalism and minored in political science.
Matthew Dietrich
Executive Editor
Matthew Dietrich is the Executive Editor of Reboot Illinois. He is the former Editorial
Page Editor of the State Journal Register in Springfield. He holds a bachelor’s
degree in communications from the Saint Louis University and a master’s degree in
journalism from the University of Illinois at Urbana-Champaign.
Anthony Knierim
Director of Digital Strategy
Anthony Knierim is the Director of Digital Strategy for Reboot Illinois. Formerly with
Accenture and Aon Hewitt, he has experience in building mass audiences on social
media platforms and managing large-scale social media communities. Anthony was
born in Hinsdale, IL and received a bachelor’s degree in business administration and
marketing from Illinois State University.
Madison Bondi
Outreach Manager
Madison Bondi is the Outreach Manager of Reboot Illinois. Formerly with BCV, an
award-winning social media management firm, Madison has experience in public
relations and in building digital communities and brands. She has a bachelor's
degree in sociology and minor in public administration from Northern Illinois
University
rebootillinois.com
3
Flat Income Tax? Progressive Tax? No State Income Tax? A Nationwide Overview
Reboot Illinois Infographic
July 23, 2013
The 1970 Illinois constitution states that
Illinois' state income tax must be applied with one rate
paid by all taxpayers.
Illinois is one of nine states with flat-rate
income tax. There are 34 states that use a graduated
income tax system in which the percentage of income
tax owed goes up with a taxpayer's income. Seven
states, meanwhile, have no income tax.
In 2011, Illinois raised its income tax from 3
percent to 5 percent in order to combat both a multibillion-dollar backlog of unpaid bills and to prop up a
failing public pension system. But two years later, the
backlog of unpaid bills hovers around $8 billion and
despite nearly all the new tax money going into the
pension system, the state now carries a $100 billion
unfunded pension liability. The new tax rate brings in
roughly another $7 billion a year, but most of that will
disappear on Jan. 1, 2015, when the tax rate is
scheduled to fall back to 3.75 percent.
Against this background, a bill has been
introduced in the Illinois House to amend the state
constitution to allow Illinois to consider adopting a
graduated income tax. Proponents say a progressive
system will bring in more money for the state while
reducing tax bills for middle- and low-income
taxpayers. (Here's one view in favor of a progressive
tax system.)
Opponents, though, say all of this is merely a
money grab by a government that has run the state into
the ground through poor management. They say that
ultimately a progressive system would result in the vast
majority of taxpayers paying more each year -especially when contrasted with the pre-2011 3 percent
rate and even the 3.75 percent flat rate scheduled to
become law in 2015. (Find a detailed explanation of
this view here.)
So where does Illinois fit in the national state
income tax picture? Here's a look. We've also included
a table at the bottom of the chart that shows the widely
varying range of tax brackets and income levels other
states use to define their progressive tax systems.
You'll be hearing a lot about this issue in the months to
come, as supporters of a progressive system for Illinois
want to see a constitutional amendment placed on the
November 2014 ballot.
4
Dem Tax Plan Will Punish Businesses for Success
by: David From
Americans for Prosperity
While busy failing to pass pension reform or
cut spending this past legislative session, some
leading Democrats in the General Assembly found
time on the last day of the Spring session to make a
bad piece of legislation even worse. I’m referring to
the proposed constitutional amendments, SJRCA 40
and HJRCA 33, seeking to change the Illinois
Constitution to impose a graduated income tax on
both personal and corporate income.
That means the more success a business or
family enjoys the more money the government will
take. Not only will this penalize success, it sends
the clear message to businesses and individuals that
Illinois does not want them to succeed here, nor does
it want them to grow their business in the Land of
Lincoln. Instead of proposing to just penalize the
success of individuals, Illinois politicians want to
penalize our state’s most profitable employers likely
driving jobs away in a state where unemployment is
already nearly two points higher than the national
average
Illinois currently levies two forms of income
tax, personal and corporate, both at a flat rate and
hiked by the General Assembly in the dead of night
during the final day of a lame duck session in 2011.
Personal income taxes were raised by 67% and
corporate income taxes by 46%. This past January,
state Representative Naomi Jakobsson (DChampaign) introduced a constitutional amendment
to shift the way Illinois taxes personal income from
a flat tax to a graduated tax. Then on the last day of
the Legislature’s regular spring session, Sen. Don
Harmon and Rep. Jackobsson introduced new
Constitutional amendments that would remove any
distinction between the corporate and personal
income tax rates, while taxing them on a graduated
basis
As Reboot Illinois correctly pointed out in
their editorial last week, there are no rates included
in this proposal nor have the bill sponsors detailed
any separately, although Rep. Jakobsson did state
her opinion that “we’re a pretty low-taxed
state.” Fortunately, the leading voice promoting the
progressive income tax, the Center for Tax and
Budget Accountability, has put forth a plan for
progressive marginal tax rates in Illinois ranging
from 5% to 11%. Under this plan, a family earning
between $5000 and $100,000 annually would pay a
5% marginal tax rate; a family earning $100,000 to
$150,000 would pay 7.5%; these rates continue
upward until the people earning over $1 million
would pay a rate of 11%.
With the inclusion of corporate income in
the recently introduced amendment, under this plan
even modestly profitable corporations would be
taxed at a rate of 11%. When the 2.5% Personal
Property Replacement Tax is added in for a total
corporate tax rate of 13.5%, Illinois would have the
highest corporate tax rate in the nation and one of
the highest in the industrialized world.
Illinois state government is already
collecting more tax revenue than at any other time in
its history, yet our leaders cannot get its fiscal house
in order. Why should taxpayers and businesses give
more of their income to a group that refuses to
control spending and fails to address the state’s
largest fiscal calamities like pension liabilities?
The inclusion of corporate income in the
new progressive tax constitutional amendments
betrays a disturbing contempt for job creators
located in Illinois. In a state that badly needs jobs
and economic activity- and the increased tax revenue
that comes with it, this proposal will only serve to
drive jobs away. Changing the Illinois Constitution
to levy a progressive tax on personal income is a bad
idea that will hurt Illinois families; changing the
Constitution to also levy a progressive tax on
corporate income is one of the few ways to make
that proposal even more harmful to Illinois’
economic future and Illinois families.
5
Illinois' Flat Tax System: Outdated, Unfair
by: Ralph Martire
Center for Tax and Budget Accountability
December 2012
The most challenging issues for the public
sector to resolve are those that are both long-term
and complex. The primary reason for this, of course,
is politics, which by their very nature strongly
incentivize elected officials to focus on policy
agendas that can both demonstrate relatively shortterm successes and be explained simply and quickly
to voters. After all, if a politician spends too much
time trying to fix some intractable, long-term
problem, there may be no positive result to show to
constituents by the next election cycle. That's not
good for the campaign. Worse, if an elected official
is actively engaged in solving a problem that is too
complex to explain to voters in a simple sound bite
or mailer, then despite all the hard work and even
successful outcomes, there's little or no political
reward. What a time waster.
Given all that, it is no wonder elected
officials in Illinois have failed to resolve the state's
single, biggest problem: its ongoing budget deficit.
Talk about something that's long-term and complex.
Think about this, on the one hand, the data show that
after adjusting for inflation the state has cut spending
on core services like education, healthcare, public
safety and human services by $7.38 billion or almost
25% since 2000. On the other hand, the state
recently increased tax revenues by over $6 billion
annually. Yet, despite these significant cuts and
revenue enhancements, Illinois' deficit for fiscal year
2013 will be greater than $8 billion, and is projected
to grow into the future. How can this be?
The answer is, well, complex and covers a
long period of time. See, the state's deficit problems
weren't caused by the Great Recession, nor any
goofy or illegal act of the Blagojevich
Administration, of which there were many. Instead,
the true culprit is fundamentally flawed tax policy
that simply is not designed to work in a modern
economy. Indeed, the state's mix of tax revenues is
so poorly designed that it fails to satisfy any
principles of sound, fair, efficient or stable taxation
for a modern, capitalist economy. The net result is
disastrous. In fact over time, Illinois taxes do not
generate enough revenue to continue funding the
same level of public services from one fiscal year to
the next, adjusting solely for changes in inflation and
population growth, and assuming a normal
economy. This is technically called a structural
deficit. Structural deficits are insidious, because they
start out small, but turn into huge problems as they
accumulate over the years.
Resolving a structural deficit is certainly
complex from a technical standpoint—as
establishing appropriate tax rates and bases involves
an analysis of everything from fiscal policy and
demographics to industry and job trends. It is also
toxic politically, as tax policy has truly become one
of the blunt instruments of partisan warfare. And
since the impact of a structural deficit starts out
small and only grows into significance over time,
well, it is one of those long-term problems that gets
left for another day.
Wait a minute, I hear you scream, what
about the state's huge, $83 billion unfunded pension
liability? By all accounts, the state's annual
payments to the five pension systems for which it
has responsibility is growing by leaps and bounds
every year. Surely that pension funding crisis is to
blame for a big part of state's deficit, right?
6
Well, as it turns out, the answer is yes and
no. Sure, the significant increase in payments Illinois
is required to make to its five pension systems under
current law is straining existing resources, but the
reality is these increasing annual pension payments
are far more a symptom of the structural deficit than
a cause of the problem. Consider that for decades,
elected officials in Illinois chose to paper over—
without resolving—the structural deficit by
borrowing against what they owed the pension
systems and using that borrowed revenue to fund
delivery of public services. Hence the state pension
systems—against their will—were lending money to
the Illinois General Fund to subsidize the cost of
delivering current services, like education, caring for
abused seniors or providing child care to single
working parents. This effectively allowed taxpayers
to consume public
services for over 40
years without having
to pay the full cost of
those services.
By the end
of FY1994, Illinois
lawmakers
had
borrowed so much
against the pension
systems to pay for
services that the
overall funded ratio
of all five systems
was
just
54.5
percent, and there
was a cumulative
unfunded liability of $17 billion. Ostensibly to
rectify this situation, in FY1995 the General
Assembly passed and Governor Edgar signed P.A.
88-0593, which established what became known as
the "Pension Ramp." The Pension Ramp mandated
that the state's annual pension contributions be made
pursuant to a defined repayment schedule which
would result in the systems being 90 percent funded
by 2045.
Although the publically stated rationale for
the Pension Ramp was to repay the debt owed to the
pension systems it also served another, unpublicized
purpose. See, by law, the 1995 Pension Ramp
continued the practice of borrowing against the full
annual contributions owed to the pension systems to
subsidize the cost of delivering public services for
15 years after passage. P.A. 88-0593 accomplished
this boondoggle by creating a repayment schedule
that was so back-loaded that it grew the unfunded
liability by almost $25 billion through 2010. Ah, it's
great to leave hard, complex problems for the longterm by codifying an irresponsible fiscal practice
that lets current elected officials off the hook.
The portion of the Pension Ramp that
remained after 2010 required Illinois to make annual
pension payments that grew from year-to-year at
rates that were simply unattainable. Consider that
last year in FY2012, the total payment the state was
required to make to the pension systems was $4.14
billion. Of that amount, $1.61 billion, or less than
half, was the state's employer cost of paying for
pension benefits being earned by current workers.
Fully $2.53 billion was repayment of debt owed to
the five pension systems. In FY2013 the Pension
Ramp required the
state to increase its
total payment to the
pension
systems
from $4.14 billion to
$5.10 billion. That's
a significant year-toyear jump of $1
billion or 23 percent.
Now
here's
the
kicker, all of that
increase is debt
repayment. Indeed,
the state's employer
cost
actually
declined from $1.61
billion in FY2012 to
$1.58 billion in FY2013, due to the large number of
workers leaving the system.
So yes, the ever escalating repayments of
debt required under the Pension Ramp have now
reached the point that they are straining the state's
resources, but no, they are not the cause of the
problem. Instead, the fiscal strain is caused by the
goofy Pension Ramp that established a debt
repayment schedule that no revenue system could
cover—much less the one in Illinois which can't
even sustain the same service levels from year-toyear. The bottom line to take away from this is both
simple and clear, politicians will never put the state's
fiscal house in order unless they tackle the longterm, complex problem of eliminating the state's
structural deficit, by thoughtfully reforming Illinois
tax policy.
7
"Progressive Tax" Is Code for "Tax Increase"
by: John Tillman
Illinois Policy Institute
Now that the 2011 state tax increase has
failed to satisfy Springfield’s appetite for
overspending, expect the big government crowd to
move on to another tax hike: a progressive tax.
A progressive tax plan making the rounds in
Illinois would increase taxes on 85 percent of filers.
Just as bad, it would not solve Illinois’s perpetual
budget crisis.
Illinois has a constitutional requirement for a
flat tax that treats all income earners the same – one
rate for everyone, no discrimination. With a flat rate
we not only have simplicity,
but Illinois’s top earners pay
a higher proportion of the
state’s tax revenues. For
example, the top .6 percent
of wage earners pay 17.4
percent of tax revenue, the
top 14. 3 percent of earners
pay 55.7 percent of
revenues and the top 37.7
percent of earners pay a
whopping 81.6 percent of
revenues.
A flat tax that treats
all earners the same is the best – and fairest – way to
get upper income earners to carry a much heavier
burden. And yet the Occupy protestors, public
employee unions, Illinois Gov. Pat Quinn and
President Obama think upper income earners still do
not pay enough.
Think about whom the “1 percent” and
upper income earners are. They are entrepreneurs
who have pursued life, liberty and happiness. For
many, pursuit of a dream is the root source of their
affluence. They risked some of their own money and
perhaps recruited investors to put in some of theirs.
They hired workers to join them in making this
dream a reality. Some of those workers became 1
percenters, too.
And how do these dreams come true? By
operating businesses that succeed by serving others
well. That is the essence of the free market and
capitalism. Despite all its flaws, despite the risks,
despite the many challenges, success is achieved by
serving others well. This should be championed, not
vilified by some and punished by the tax code.
The progressive tax is immoral for the
reasons cited above. But what if it would actually
work to solve our budget
crisis once and for all,
would it be worth it then?
Putting aside the
discriminatory nature of
requiring some people to
pay higher rates because
they have been successful,
what would a progressive
tax look like in Illinois?
Fortunately, we have a
progressive tax plan to learn
from that is being floated by
the Center for Tax and
Budget Accountability. CTBA, a union-funded
policy organization, makes the case that a
progressive tax (largely modeled on Hawaii’s)
would raise $2.4 billion dollars. But that is not the
entire story.
The CTBA’s plan, as presented, would
increase taxes by a whopping $8.64 billion, far more
than the devastating January 2011 tax hike of $7
billion. Of this amount, CTBA says that $2.4 billion
comes from the a new progressive tax scheme but
the remaining $6.24 comes from making that
January 2011 tax hike permanent on all earners
above $5,000.
8
The real goal of the campaign for a
progressive tax in Illinois is to make the tax hike
permanent. Rates are scheduled to fall from 5
percent to 3.75 percent at the end of 2014. Under
CTBA’s plan, 85 percent of all taxpayers would fall
into the higher rates. Those making $5,000 or more
would pay 5 percent up to as much as 11 percent on
top of all the other taxes they already pay. That is the
pattern with progressive tax hikes; the higher rates
are sold as only affecting high earners, but there is
just not enough money there to fund the government
unions’ pensions and benefits so the rates must creep
down to ensnare virtually all taxpayers. That’s why
we call the progressive tax a creepy tax. Here’s
CTBA’s own work that shows this truth:
As noted, the CTBA’s progressive tax plan
very close resembles Hawaii’s. Under Hawaii’s plan
an Illinois family earning $50,000 would pay $881
more in yearly taxes. That is a tax hike on the middle
class,
not the
affluent.
P
erhaps
Illinois
is a low
tax
state.
This
case is
often
made by
comparing our percent of taxes paid as a share of
household income. By this measure, Illinois doesn’t
look too bad because we are still a high-income state
(though we are falling, once ranking as high as 6th
in household income and now down to about 13th).
But using our tax burden as a percent of income is
the wrong way to look at it.
When you go shopping, do you notice,
based upon how people dress, quality of cars and
other socioeconomic factors you can observe, that
people of all income ranges shop at stores like
Costco? Each of them is trying to reduce their per
capita expenditures. Some of the Costco shoppers
could shop elsewhere and pay more while others
cannot afford to. Yet Costco attracts people of all
income levels because every customer wants to
minimize cost per household.
Among a state’s customers are its taxpayers.
Taxpayers look around and make decisions about the
future based, in part, upon the per capita cost of
government per household, not the cost of
government as a percent of income. I recently spoke
to a businessman who said he was shifting his new
investment to Indiana because the cost of building,
property taxes, income taxes, workers compensation
and the regulatory cost of permitting all were far less
than in Illinois. He could afford to invest in Illinois,
but he will get a higher return in Indiana so he has
shifted his new investment focus.
On a per capita basis, Illinois ranks 8th
highest in our rate of taxation and we would move
up to 7th under the CTBA plan. Illinois already
ranks 48th out of the 50 states in net out migration.
Net out migration is the rate at which our citizens
leave here to go elsewhere for a better deal netted
out against those coming to Illinois. Not only does
Illinois rank 48th, our state loses population on a net
basis to each of our neighboring states and to 43 of
the other
49
states.
Passing
a
progress
ive tax
would
drive
out even
more of
our
citizens
to Indiana and other states where customers are
treated with more courtesy and respect.One of the
myths of those advocating for a progressive tax is
that even Adam Smith supported it in the Wealth of
Nations. This is not true – Adam Smith supported
proportional taxation. Proportional means the same
slice of the pie for everyone – no discrimination.
Even then, he never supported taxes on income, so if
we are to use Adam Smith as our guide we should
not just defeat the effort to install a progressive tax,
we should work to eliminate income taxes
altogether.
In fact, over the next several years, that is
exactly what the Illinois Policy Institute will do –
make the case to eliminate Illinois’s income tax
altogether. When we do that, there will be no
discrimination and Illinois will once again become a
high growth state where household incomes are
rising.
9
Amendment Sponsor: Progressive Tax is Fair
by: Naomi Jakobsson
State Representative, D-Urbana
HJRCA2 is not legislation to increase taxes.
It is an amendment that corrects a serious flaw in the
State Constitution that prevents the legislature from
enacting a fair tax. It simply says that the State may
impose a graduated or flat income tax, as opposed to
the flat tax that is now mandated.
The time
to amend the
Constitution in
this way was,
frankly, a long
time ago. Now
we should do it
as
soon
as
possible. The way it must be done is for both
houses of the General Assembly to vote to put it on
the ballot for the 2014 election, and for the voters in
that election to pass the amendment. The timing of
the passage is critical, because the 5% flat income
tax expires in 2015. If the amendment does not pass
in 2014, Illinois
will be faced
with two distinct
choices on tax
policy, both bad.
One
choice,
which
has
already been proposed, is to extend the 5% flat tax
indefinitely. This will continue a heavy burden on
the already overtaxed lower and middle income
groups, far heavier than in other states. The second
choice is to let the flat tax rate fall, with
corresponding revenue shortfalls and a reduction in
money available for vital state functions, such as
higher education and infrastructure. There is no third
choice that I can see.
What will be the results if the amendment
passes? The short answer is that we don’t know
exactly.
It depends completely on what the
legislature chooses to do with the freedom to enact a
progressive tax. My prediction, and what I would
support, is a scale in which most people will pay a
few percent less than the 5% they do now, while
some at the high end of the income scale will pay
more. Because of our very uneven income structure,
such a scale
would result in
significantly
more revenue.
The table below
shows why the
revenue would
increase. From
this table you can see that the top 1% of incomes in
Illinois comprise a larger fraction of the total income
in the state (25%) than the bottom 60% of income
(11.2+6.3+2.4=19.9%). So ANY graduated tax that
reduces taxes on low and middle incomes and raises
taxes on high incomes will bring in more revenue.
Some
people
argue
that increasing
taxes a few per
cent at the high
income end will
lead people to
leave the state. I don’t believe this is true, because
none of our surrounding states provides the
economic opportunities at the high end that Illinois
does, as seen in the table below. This is primarily
because of the great wealth emanating from
Chicago’s role as a trade, transportation, financial,
and manufacturing hub, unmatched anywhere else in
the Midwest. Anybody who would forego this level
of opportunity because of a few per cent higher
personal income tax would be foolish—and these
folks did not get wealthy by being foolish.
10
There was a famous bank robber in the
mid-20th century named Willie Sutton, who after he
was apprehended was asked why he robbed banks,
and replied, “Because that’s where the money is.”
Illinois has been just the opposite. For over 40
years, we have had a tax system that systematically
sought its revenue where the money isn’t.
Having a smarter tax structure, plus
responsible budgeting, can get us out of our hole
while lowering taxes for most people and adequately
supporting education, infrastructure, and essential
state services. On the other hand, if we cling to the
stupid tax structure we now have, the future of
Illinois will be very bleak, a series of bad choices
with no end in sight.
11
Supporters of Progressive Tax Have a Long Road Ahead
by: Matt Dietrich, Reboot Illinois
March 2013
Yesterday in our Daily Tip-Off section we
included a link to this column, in which Chicago
Tribune blogger Dennis Byrne takes issue with a bill
in the Illinois House that would let voters decide
whether Illinois could switch from a flat income tax
system (all individuals are taxed at the same rate,
now 5 percent) to a progressive system, in which
your tax rate goes up with your income. This is how
federal taxes work. Of all Illinois' neighboring states,
only Indiana has a flat tax system like ours (theirs is
3.4 percent).
The Illinois Constitution requires that the
income tax be set at a flat rate for everyone.
Writes Byrne: "It takes special gall to raise
taxes for some Illinoisans so soon after they were hit
with a massive increase in state income tax rates. So,
give an audacity award to any 'progressive' trying to
renew the ill-timed and perennial campaign to
replace the decades-old flat tax with a graduated
income tax."
So the Dennis Byrne Audacity Award for
2013 (the Audie?) goes to State Rep. Naomi
Jakobsson, D-Urbana, who has introduced HJRCA2,
a joint resolution that proposes a constitutional
amendment to allow a progressive income tax
system.
Advocates of a progressive tax say it's more
fair -- taxing people according to their means -- and
brings in more money. Opponents say it's merely
code for a tax increase and that Illinois lawmakers
simply need to learn spending discipline.
Any mention of a progressive tax system
brings emotional responses from both sides. The
reality is it would take a constitutional amendment
for Illinois to switch from its flat tax. That's
an arduous process. And it involves an issue with
extreme political sensitivity. Jakobsson's bill merely
sets in motion the long process toward voters
eventually making the decision.
The bill itself does not set tax rate
percentages or income levels. It does say that the
corporate tax rate would remain a flat rate (it has a
rough sketch of how the corporate rate would be
set).
Two things have to happen before
lawmakers can even consider changing the current
flat tax system.
1.
The House and Senate must pass
Jakobsson's proposal with 3/5 majorities. That
means every Democrat in both chambers would have
to vote for it. That’s a really big challenge
politically. When they raised the income tax two
years ago, Democrats needed help from lame ducks
who didn’t have to worry about getting pilloried by
their constituents (and who wanted jobs when their
terms ended).
2, If it passes and is placed on the November
2014 ballot, voters have to approve it (a simple
majority of all voters or a 3/5 majority of those who
vote on the amendment question). That's hardly a
given.
If those things happen, then lawmakers can
take up the issue of whether and how to change the
state's income tax system. That will make pension
reform look like a cakewalk.
And here's something else to keep in mind.
In 2014, we are likely to have one of the most hotly
contested, highly competitive gubernatorial races
ever. Would lawmakers be inclined to put this before
voters then? What if one of the candidates
(presumably the Democrat) has campaigned on
enacting a progressive tax while his/her opponent
has campaigned against it? Would lawmakers risk
confusing voters by putting this on the ballot, or
possibly generating backlash against the progressive
tax candidate?
That's not to say that all this couldn't
happen. It's just to say it's an awful lot that has to
happen in some pretty tricky circumstances. The bill
is here if you want to read it.
12
Income tax debate finally taking center stage
By Madeleine Doubek and Matt Dietrich
July 25, 2013
When rebootillinois.com launched in November 2012, we
knew that an effort to change the Illinois constitution and start a
sliding-scale, progressive income tax system likely would be
one of the biggest issues of the two years to come.
It’s taken a few months, but the progressive tax issue this
month has entered the news cycle in a big way. What to do
about the state income tax after 2015 also been firmly
established as the top issue in the 2014 race for governor.
So far, there’s been little support for amending the state
constitution to allow lawmakers to consider adopting a
progressive system. (We’ve posted op-eds by
supporters here and here.)
The Chicago Tribune, which, for better or worse, often is
responsible for placing issues on state lawmakers’ radar,
sounded off in its July 7 editorial:
“(I)mposing a progressive tax rate scheme on this
economically teetering state is all about lifting more money
from Illinois employers — especially small business operators
and farmers — and from other taxpayers too,” said the Tribune
editorial board.
The Tribune sounded what has in the few weeks since become
a familiar theme: After leading the state into the biggest
financial disaster in state history, our representatives in
Springfield now say the solution is to give them more money?
And this at a time when the state is collecting more in income
taxes than ever.
But the opposition hasn’t just come from expected sources like
the traditionally conservative Tribune.
Here’s State Rep. Jack Franks, D-Marengo, from
an interview with Reboot’s Madeleine Doubek.
“In Illinois, I don’t think we have a revenue problem; I think
it’s a spending problem. I don’t think we should be asking
taxpayers for more money when we don’t spend what they give
us wisely,” said Franks.
He explained that he did not oppose a graduated-rate income
tax on principle, but that Illinois needs to get spending discipline
before thinking of wholesale changes to its income tax system.
“We’ve never had higher revenues than we have now, but we
have larger fiscal problems. You have 35 states who are
debating whether they should cut their tax rates. Our only
question is how much higher should we be charging our
citizens. It’s the wrong debate to be having.”
And here’s Eden Martin, Chicago attorney, Sun-Times
columnist and Democrat, writing on the progressive tax debate
this week:
“(T)he point — the entire purpose — of the proposal is to
raise and spend more money. Graduated rates would make it far
easier — less politically risky — for legislators to satisfy the
eternal itch to make themselves popular with constituents and
donor groups by spending more of the taxpayers’ money,”
Martin writes.
Like Franks, Martin believes the new system would take all
pressure off of lawmakers to fix the fundamental problems that
got Illinois into its financial morass.
“More revenue means less pressure to control other costs of
government, or to negotiate more balanced collective bargaining
agreements. Instead of the ‘last resort,’ raising more tax revenue
would become the ‘first resort.’”
But it’s not just the Chicago media taking notice. Chuck
Sweeny, political editor of the Rockford Register Star, sounded
a warning this week against what he believes is a tax increase in
disguise.
“I believe Democratic legislators and Gov. Pat Quinn are
simply going to raise taxes. First, they’ll move to make the
‘temporary’ 2 percentage point income tax increase, due to
expire in 2015, permanent. They might raise ‘sin’ taxes again,
and they might slap a sales tax on haircuts and other services.
“And I think they’ll put an amendment to the state constitution
on the 2014 ballot to allow them to implement a graduated
income tax instead of the currently mandated flat tax. They will
sell it to us with the slogan, ‘Vote yes, make the wealthy pay
their fair share.’ But it could end up raising taxes on most of us
who don’t yet know we’re wealthy.”
We’re already on record voicing concern with the open-ended
nature of the various progressive tax bills. You can read that
view here.
We’re sure that as this issue heats up, supporters will become
more vocal. For now, though, the progressive tax skeptics are
controlling the conversation.
Want to learn more about the progressive vs. flat tax debate?
Join us in Springfield on Aug. 15 as Ralph Martire of the Illinois
Policy Institute and Ted Dabrowski of the Illinois Policy
Institute discuss the pros and cons, respectively, of changing
Illinois’ income tax. Reboot editor Matt Dietrich will moderate
the forum, which is co-sponsored by the Citizens Club of
Springfield. For information, click here.
13
Despite Higher Income Tax, State Finances Continue Downward Spiral
Reboot Illinois Infographic
A bill filed by Rep. Lou Lang (DSkokie) is intensifying speculation that
the 2011 personal and incorporate income
tax hikes could become permanent. The
legislation would extend the tax increases
indefinitely, with the revenue earmarked
for the state’s pension funds.
Can legislators afford to roll back
the tax hikes as planned? The answer is,
pension reform notwithstanding, no.
In 2012, the state collected almost
$20 billion dollars in personal and
corporate income tax revenue, a 79
percent increase from 2010. Still, the
state’s backlog of unpaid bills increased
by 60 percent and its unfunded pension
liabilities went up by 13 percent over the
same time period.
The state is currently grappling
with more than $9 billion in unpaid bills
and a worst in nation $96.8 billion in
pension debt.
In this week’s infographic,
Reboot Illinois reviews Illinois’ tax
history, breaks down the state’s tax
revenue and considers what might lie
ahead for taxpayers as the state’s fiscal
outlook continues to deteriorate
14
New "Fair Tax" Resolutions, Same Old Questions
by: Reboot Team
June 2013
There was a lot to criticize about the bill that
raised Illinois’ income tax in January 2011.
It was passed in the last minutes of a lame duck
session, and passed only because it had votes from lame
duck lawmakers who wouldn’t have to face consequences
from voters. It passed with no Republican votes. Some of
those lame duck “yes” votes later found employment in
state government.
And, of course, it raised your income taxes from
3 percent to 5 percent.
But one thing about that tax increase: We knew
what we were getting. The increase was spelled out
plainly. As was the time period: four years, then back
down to 3.25 percent.
With the Jan. 1, 2015, expiration date fast
approaching, and the state in no way prepared to survive
the loss of some $6 billion a year that will be lost,
lawmakers (and gubernatorial candidates) are in a
quandary. Extending the tax increase won’t be popular,
but neither will be the draconian cuts that will be
necessary to make up a $6 billion hole.
Which is why everyone in Illinois should pay
attention to a couple of resolutions (here and here)
introduced last week on the last day of the General
Assembly’s spring legislative session. Both propose to
change the state constitution to allow a graduated income
tax system. But neither provides any hint of what kind of
graduated system might follow.
And unlike a bill introduced earlier in the
session, which would allow a graduated income tax for
personal income tax only, the new resolutions propose
allowing a progressive system for both corporate and
personal taxes.
There are many constitutional amendment
resolutions introduced in every session. Most are for
show, covering things like defining marriage and term
limits. But these bills have heavy sponsorship among
Democrats, who hold super-majorities in both chambers.
The Senate bill in particular has strong sponsorship from
Chicago, suburban and downstate senators and among
black, white and Latino members.
Even if one of these resolutions passes, voters
ultimately will decide whether Illinois can consider
dropping its flat tax system.
The problem is, we don’t know at this point what
the sponsors of these amendments have in mind.
Illinois law today states that your income tax be
3.25 percent as of Jan. 1, 2015. Therefore, any system that
makes you pay more than 3.25 percent is, by today’s
standards, a tax increase. Looking over our infographic on
states with progressive tax systems, you won’t find many
with tax brackets under 3.25 percent.
If you make $60,000 a year in North Carolina,
you pay 7.75 percent. If you make over $14,000 a year in
South Carolina, you pay 7 percent. The lowest tax bracket
in Wisconsin is 4.6 percent.
The language in the two resolutions filed May 31
describes the new system as “a fair tax where lower rates
apply to lower income levels and higher rates apply to
higher income levels.”
Trouble is, who defines what’s fair? What do the
supporters of these bills have in mind? Will Illinois be
like Mississippi, where $10,000 a year puts you in the top
bracket of 5 percent? Or will we be like Oregon, where
$125,000 a year puts your tax rate at 9.9 percent?
If we’re going to have this discussion, let’s have
it honestly. Like we said earlier, at least in 2011 we knew
a tax increase was coming. As things stand now,
discussing a complete makeover of the state’s tax system
amounts to a big smokescreen that obscures the very
difficult decision that lawmakers must make next year.
But if the sponsors of these progressive tax
amendments expect voter support in November 2014,
they’ll need to give a hint of what they have planned for
afterward first.
15