Pay off debt? Save for retirement? What are you doing?
Are you good with a mandating that employees save for retirement, following the Australian model?
Is the story of the evolution of retirement a hunt for villains or a simple narrative of cause-and-effect?
Is it a good thing, or a problem, or just a thing-that-will-be, that the world’s population will shrink, assuming that does come to pass?
I ♥ the Wisconsin Retirement System. Is that so wrong?
Yeah, California’s pension plan reformers had a win at their state supreme court. But it’s really a small piece of a much bigger challenge.
So, readers, I had every intention of keeping this space nonpartisan, so I’m going to say this in the most nonpartisanly-way possible: the just-released Pritzker tax plan (as linked to at CapitolFax.com) is terrible.
I should preface this by saying that I have no objection to graduated income taxes in principle. They give due recognition to the principle that everyone should pay into the system to at least some degree, but that it’s appropriate for those who can pay more without being deeply burdened, to do so. But at the same time, a graduated income tax should not be so imbalanced as to create a situation of excessive dependence on the wealthy for tax revenue, a dependence that puts the state at risk of substantial revenue volatility (as, for example, California experiences with half of its income tax revenue coming from people earning $500,000 or more, or 1% of its population), and simply creates a tendency to see government spending as “free money” rather than funded by taxing and spending decisions made in the best interests of state residents.
With respect to Illinois in particular, I have been distrustful of claims that our state will solve its financial woes with a graduated income tax because of the promises being made by Gov. Pritzker that only “people like me” (that is, the insanely wealthy) will be affected, and therefore no particular sacrifice is required on the part of any real people — and that’s on top of a generalized distrust of our elected officials. And no where in any of the discussion is there any statement made that there will be any efforts made to ensure that our tax money is spent wisely and as effectively as possible.
That being said, let’s look at the proposal, bearing in mind that the current Illinois personal income tax rate is 4.95% for all income above a personal exemption of $2,000.
Income up to $10,000 (27.2% of taxpayers) – 4.75%
Marginal rate up to $100,000 (58.9% of taxpayers) – 4.90%
Marginal rate up to $250,000 (11.1%) – 4.95%
Marginal rate up to $500,000 (1.9%) – 7.75%
Marginal rate up to $1,000,000 (0.6%) – 7.85%
Total rate for taxpayers with income above $1,000,000 – 7.95%.
So what do you notice?
In the first place, the incessant promises of “tax cuts for the middle class” may be literally true insofar as 4.90% is 0.05 percentage-points less than 4.95%. But these trivially-reduced rates demonstrate more than anything else the foolishness of having promised a “middle class tax cut” in the first place. It would have been far better for Pritzker to have acknowledged this (and better still not to have promised it); to hold to his campaign promise in this manner treats Illinoisians as fools, really. It also feels a bit like the game of pricing ending in .99, what with these brackets that are basically 5% and 8% but rely on residents thinking of 4.95% and 7.95% as meaningfully less than that, and having the multiple brackets with nearly identical tax rates makes no sense either.
In the second place, the proposal makes no differentiation between single and married taxpayers, imposing a substantial marriage penalty on upper middle-class earners.
And in the third place, the “millionaires’ tax” is astonishing. Here’s the math: a household with $1,000,000 in earnings would pay $70,935 in Illinois taxes. A household with $1,000,001 in earnings would pay $79,500, or $8,565 more for a single dollar more in income. Yes, I know, world’s tiniest violin, etc., but it makes no sense. It seems to be a matter of proving that you’re serious about sticking it to the wealthy, perhaps with some notion that there is no such thing as being “just a little bit rich.” But as an actuary, it makes me question whether these people can do math, and it also reeks of hubris, that is, a conviction that Chicago(land) is so indispensable, its economy so strong, its quality of life and cultural institutions so irreplaceable, that its denizens cannot possible leave for greener pastures.
Or has Pritzker intentionally omitted single/married brackets and intentionally added the all-income tier so as to subsequently eliminate these to proclaim that he’s compromising?
Again, I’m not going to burst into a rage or start using ALL CAPS but here we are. Democrats hold not just a majority but a supermajority in the General Assembly so they can afford to lose the votes of a few of their members in swing districts worried about re-election, and there’s no reason not to think they’ll steamroll this through just as quickly as the minimum wage hike, then present voters with the amendment as practically a done-deal.
Image: https://media.defense.gov/2019/Feb/12/2002088973/-1/-1/0/181206-A-UM169-0001.JPG; https://www.dover.af.mil/News/Article/1755127/what-you-should-know-about-filing-2018-taxes/ (public domain/US gov)
What do you think should be central to any retirement plan offered outside the workplace?