These are taxing times

Bill Knight column for 4-15, 16 or 17, 2019

With the arrival of tax-deadline day, thoughts inevitably turn to federal tax issues, from the 2017 tax cuts that enriched corporations and wealthy at the expense of the rest of us, to proposals from the likes of U.S. Sen. Elizabeth Warren and U.S. Rep. Alexandria Ocasio-Cortez to tax wealth instead of income or raise the top marginal tax as high as 70 percent on incomes above $10 million (less than Republican President Dwight Eisenhower had).

But closer to home, the Illinois Senate Executive Committee on Wednesday passed by a 12-5 vote Senate Joint Resolution Constitutional Amendment 1 as a step toward a “fair tax,” and the whole General Assembly is expected to consider the measure before its session ends next month. Reluctant lawmakers may be enticed to support the amendment by a capital bill that could help districts and constituents, and if it fails, the legislature would have to consider dealing with a $3.2 billion structural deficit with 15-percent across-the-board cuts or a 20-percent increase in the current flat tax.

Gov. J.B. Pritzker said, “It doesn’t make sense that I pay the same rate as a teacher or a first responder. Under my fair-tax plan, 97 percent of taxpayers get tax relief and the wealthy will pay their fair share.”

The Democrat also criticized the rich and powerful, saying, “You are defending an unfair status quo that benefits the wealthiest Illinoisans instead of offering your own ideas for how to fix our state’s problems.”

Today, all Illinois citizens pay 4.95 percent, no matter their income. Under a graduated-rate, or progressive, income tax, new revenue would be generated by getting more taxes from the wealthiest individuals and corporations.

As drafted, the proposal would drop the rate for the first $10,000 to 4.75 percent; decrease it to 4.9 percent for incomes between $10,000 and $100,000; leave it unchanged for those earning $100,000-$250,000; increase it to 7.75 percent for incomes between $250,000 and $500,000; hike it to 7.85 percent for people reporting incomes of $500,000-$1 million; and raise the rate to 7.95 percent for incomes above $1 million. The corporate rate would go up from 7 percent to 7.95 percent.

Also, it would have tax relief for landowners, increasing property-tax credits by 1 percent, and add a per-child tax credit of up to $100 for those earning less than $80,000.

The federal government and 34 states have progressive income taxes, including four states bordering Illinois. Missouri’s top tax rate is 5.9 percent starting at $9,072; Kentucky’s is 6 percent beginning at $75,000; Wisconsin’s is 6.27 percent beginning at $22,470; and Iowa’s is 8.98 percent starting at $72,000.

The opposition is predictable, from the Illinois Manufacturers’ Association to the Right-wing Illinois Policy Institute, and they’re mostly using the same refrain about the graduated tax hurting the middle class, which isn’t supported by the proposal or independent analysis.

House Minority Leader Avery Bourne (R-Raymond) said, “This graduated income-tax proposal will punish hard-working families and small businesses.” State Chamber of Commerce CEO Todd Maisch said, “The proposed amendment will not fix our state’s current fiscal crisis but will discourage entrepreneurs and facilitate unbridled tax increases on our middle class.” And Senate Republican Leader Bill Brady (R-Bloomington) said, “This isn’t helpful to Illinois’ economy and to middle-class families.”

However, a nonpartisan, peer-reviewed study by the nonprofit Illinois Economic Policy Institute released last week reported that a graduated income tax would generate $3.12 billion in additional revenue and save property taxpayers about 10 percent, while reducing income inequality in the state.

(Even the nonpartisan Civic Committee of the Commercial Club of Chicago has suggested addressing the state’s fiscal woes by raising taxes, which they propose increasing the current flat tax from 4.95 percent to 5.95 percent.)

Some lawmakers will fan out to explain the proposed change, such as Assistant Majority Leader David Koehler (D-Peoria), who’s scheduled a May 3 town hall in Peoria, and most are sure to tap into public support since 72 percent of us back the idea, according to a 2018 poll by the bipartisan Paul Simon Public Policy Institute at SIU/Carbondale.

In order for the fair tax to take effect Jan. 1, 2021, the House and Senate each must approve the amendment by a 3/5 vote, which means 71 out of 118 seats in the House (where Democrats hold 73 seats) and 36 out of 59 votes in the Senate (where Democrats have 40 seats). Then Illinoisans would have to vote to change the state’s constitution, which established the flat tax 49 years ago.

To determine how your income tax would be affected go to the “income tax calculator” at https://www.chicagotribune.com/news/local/politics/ct-viz-graduated-income-tax-calculator-htmlstory.html.