DIXON – On a day when action was taken in Springfield on the governor’s graduated income tax plan, about 50 local residents took advantage of an opportunity to learn more about it.
The Senate on Wednesday approved a graduated income tax structure that charges a rate of 7.99 percent for the state’s wealthiest residents. The proposal must pass the House by a three-fifths supermajority before a referendum could be put on the November 2020 ballot.
Daniel Hertz, research director for the Center for Tax and Budget Accountability, was at Mama Cimino’s on Wednesday to present information about Gov. J.B. Pritzker’s proposed changes to the income tax structure. Hertz appeared as part of a speaker series sponsored by Action for a Better Tomorrow – Sauk Valley.
The Center for Tax and Budget Accountability is a nonprofit bipartisan think tank, based in Chicago, that has a stated mission of working to promote social and economic justice for everyone. It is also involved in the Responsible Budget Coalition, a group of more than 300 organizations that call for producing enough revenue to fully fund vital state services and make wise investments.
One of the nonprofit’s guiding principles is fairness in raising revenues, and it believes the graduated income tax system checks that box.
“The current Illinois tax structure is unfair and inadequate,” Hertz said. “This is the eighth-most regressive system in the nation where 20% of the state’s lowest earners have twice the tax burden of the wealthy.”
In Illinois, wage earners making $22,000 or less pay 14 percent of their income to state and local taxes, according to a study done by the Institute On Taxation and Economic Policy, a nonprofit bipartisan tax policy organization.
The inadequacies of the state’s flat-tax system have taken a huge toll on critical services such as education, health care, human services and public safety. From 2000 to 2019, higher education spending is down by 52%, health care by 22%, human services by 29% and public safety 21 percent.
“The national average for K through 12 spending has the states picking up about half of the cost, but only 25& comes from Illinois,” Hertz said. “Local government picks up the rest, and that means higher property taxes, which hit lower-income areas much harder.”
By 2020, projections have the state staring at a $3.2 billion budget deficit and a $15 billion debt backlog, numbers that scream for meaningful reform, Hertz said.
“We have three choices: We can continue what we’re doing; we can raise taxes on everyone; or we can raise taxes on those who can afford it most,” Hertz said.
Under Pritzker’s tax plan, an $3.4 billion more would be generated annually, and it would come from the most affluent 3% of the tax base. With a $250,000 threshold for the tax increase to kick in, the other 97% would get tax relief or stay at the same rate.
One of the biggest concerns about a graduated tax structure is that the constitutional change will open the door to constant changes. The nonprofit doesn’t believe that would happen.
“They can already change the tax rates,” Hertz said. “In the last 50 years, lawmakers have shown they don’t like to mess with taxes if they can avoid it because of the political implications.”
Another argument made by opponents of the tax change is that the wealthiest residents could leave the state. Hertz contends that when the wealthy leave it’s to states such as California and New York that have much higher top rates. Most other Midwest states also have higher taxes on its wealthiest residents. Minnesota’s top rate is 9.85% and Iowa’s is 8.98%. Wisconsin’s is lower, at 7.65%, but it also has a much lower threshold.
If the necessary referendum to amend the Illinois Constitution gets on the ballot, to pass it would need the approval of either 60 percent of those who voted on the question or 50 percent of those who voted at all. The new rates wouldn’t be included in the language of the referendum; it would just strike down the flat tax mandate.
Another concern comes from big business. The state constitution says that the tax rate imposed on corporations shall not exceed the individual rate by more than a ratio of 8 percent to 5 percent. The current corporate rate is 7 percent, so without a cap, the graduated tax’s top rate of 7.99 percent could open the door to a corporate rate of more than 15 percent – the highest in the nation.