Selling streets to fund pensions? Eye-catching and both more, and less, than meets the eye.
Oh, the irony: back in 2015, before Trumpism, long before the Illinois General Assembly placed on this November’s ballot a measure to enable a graduated income tax, I supported such a tax at my Patheos blog. I called it “the Jane Tax Plan” and advocated for lots of tax brackets, with moderate increases from one to the next, so that there was never a point at which a jump from one bracket to the next felt punitive. Separately, I wrote that, with respect to graduated income tax rates, ” is that it is most reasonable and appropriate to ask those who are most able to, to pay a disproportionate share of the total income tax burden.”
Which means that I might appear, were I to say, “vote no on the fair tax!” to be a hypocrite.
In reality, well, it’s a mess.
In principle, a graduated income tax is reasonable and appropriate, and, what’s more, it’s not appropriate for the state’s constitution to spell out what sorts of taxes are and aren’t permitted and, in particular, to mandate that any income tax be flat across all income levels.
In reality, I have serious doubts as to whether Illinois politicians can handle the responsibility that comes with this increased power.
It is, after all, well-established that states that succumb to temptation, end up with marginal tax rates on higher income levels so high that, first, they drive residents away, and, second, they are highly susceptible to swings in revenue, as the highest earners’ income fluctuates so much from year to year (bonuses, sales of stocks, etc.). And the fact that the tax rates stay low(er) for low(er) earners creates a mindset that the possible tax revenue from higher earners is “free” money for the legislators’ spending wishes.
Of course, plenty of states manage to be responsible about their tax-rate-setting abilities. But I simply don’t believe that Illinois is.
And with that in mind, let’s look at the message of the ads in support of this amendment, via the website “Vote Yes for Fairness.”
In the first place, of course, the label “fair tax” is so loaded as to be itself untrustworthy. Why is a graduated income tax “fairer” than a flat tax? As it happens, until Pritzker began his campaign, another group was using the “fair tax” moniker for a type of tax that Pritzker would surely label extremely unfair: the swapping out of our existing national income tax and its replacement by a national consumption tax. The website FairTax.org is still active, with the organization Americans for Fair Taxation, and the left-leaning Tax Policy Center, in 2015, wrote “The Trouble with the Fair Tax,” which rejects the tax because it would disproportionately impact lower-income workers.
But beyond that, here are that site’ promises, which are the same as in ads everywhere:
- Bring our tax system up-to-date with the one used by a majority of states and the federal government
- Lift the burden off of lower and middle-income Illinoisans by asking the wealthiest to pay their fair share
- Require only individuals making over $250,000 a year to pay more
- Ensure at least 97% of Illinoisans see their taxes cut or remain the same
- Keep taxes the same or less for all small business owners making less than $250,000 a year in profit
- Generate additional revenue to fund our schools and lower the property tax burden
- Address Illinois’ structural budget deficit and put the state on the path toward fiscal sustainability
- Make sure essential workers aren’t forced to pay the same tax rate as millionaires and billionaires
Are these claims legitimate?
In the last session of the General Assembly, they passed a law which sets new tax rates if the voters approve the graduated tax amendment. These rates — which, incidentally, at the top level are not marginal tax rates at all but a jump to a new tax rate on all income — include a 0.05% drop in rate for taxpayers earning less than $100,000, allowing supporters to claim that their taxes will “drop” without acknowledging how little the drop will be. Then, for those with incomes of $250,000 or over, rates increase from 4.95% to 7.75%, and then further to 7.9% for millionaires. (Note that there is no differentiation between singles and couples.)
But these rates are not locked into the amendment. Once authorized, the legislature can make any changes it likes, so that making promises such as “only individuals making over $250,000 per year [would] pay more” is extremely misleading.
In addition, that a graduated tax system may be more common than a flat tax is one thing — but that’s only one characteristic of tax systems. As the Illinois Policy Institute reports, of those states with graduated income tax rates, it is actually a more common approach to use the marginal tax rate structure to reduce taxes on the lowest-income taxpayers than it is to “as the wealthiest to pay their fair share,” as the pro-amendment ads say. 10 states’ highest tax rate is for income of $20,000 or less. 8 states’ highest rates are at “middle class” income levels, between $30,000 – $73,710. Only 15 states’ highest tax brackets start at upper-middle income levels, ranging from Oregon’s $125,000 to New York’s $1,077,550 bracket. And, of course, if you’ve done the math, that leaves 18 states with flat rates.
Which means that “bring our tax system up-to-date with the one used by a majority of states and the federal government” is not really true. A tax system in which the “wealthy” pay higher rates than most others is, generously, used by only 30% of states, or only 22% if you discard the states with top brackets in the $100,000’s range (4 states).
What’s it boil down to?
It boils down to, really, the fact that the untrustworthiness of Gov. Pritzker, House Speaker Mike Madigan, and everyone promoting the graduated income tax using this rhetoric and these misleading claims, makes a proposal that would otherwise be reasonable and appropriate, highly suspect indeed.