Looking at the fair tax debate

 

Bill Knight column for 10-19, 20 or 21

All the windbags unleashing the derecho blowing through media and mailboxes about the “fair tax” are picturing consequences for Illinoisans that are somewhere between winning the lottery and losing your home.

Misleading or exaggerated predictions concerning the ballot initiative to amend the state constitution to enact a graduated income tax (a “fair tax”) seem to be intended to either confuse us to reject something in our own interest or stampede us to blindly OK the measure like the Walking Dead scuffling into polling places.

On November 3, voters will decide whether to permit a graduated income tax that has the wealthiest pay proportionally higher rates. If 60% of people voting on the question vote yes (or more than 50% of all voters who cast ballots in the election), it would take effect January 1.

Today, we all pay an income-tax rate of 4.95%, a millionaire or a McDonald’s cashier. A fair tax would raise the rate for people making more than $250,000/year, keep it the same for taxpayers reporting $100,000 to $250,000/year, and lower it for everyone else, according to rates approved in June 2019. Currently, the lowest-earning one-fifth of Illinoisans pays 14.4% of its income in state and local taxes, reports the Institute on Taxation and Economic Policy (ITEP), a nonpartisan, nonprofit think tank. That contrasts with the highest-earning 1% of the population, which pays 7.4%.

Sure, paying taxes isn’t fun, but many taxpayers view it less as punishment than an investment in roads, public safety, water, libraries, schools and programs for our communities – all as vital to the economy as business inventories.

And the state has a $6.2 billion budget deficit.

But some seem to imply a fair tax is all we need to ensure sunshine, lollipops and rainbows, plus an ample supply of puppy dogs, bin-busting crops, good gas mileage and an END TO 2020.

Reality Check: Cuts in spending may be necessary, too. True, the legislature in the last 20 years has cut public safety 21%, human services 29% and higher education 52%, state records show. But the General Assembly may have to make more hard choices. The difficulty, of course, will be which expenditures, and too often decisions derive from political preferences, not social priorities.

However, if a graduated tax had been used since 2000, it would have generated some $50 billion from the state’s top earners, according to an analysis by the New York Times.

What we need is a time machine to warn the Past. Alas…

We can peer into the future, though. According to Illinois Department of Revenue data, the fair tax’s impact on residents of a sampling of Illinois counties shows 99.42% of Fulton taxpayers would pay the same or less than now; 99.49% in Henderson, 99.00% in Henry, 99.09% in Knox, 98.91% in Livingston, 99.12% in McDonough, 97,32% in Peoria, 98.35% in Tazewell, 99.18% in Warren, and 97.48% in Woodford.

(To see how you’d be affected, go online to www2.illinois.gov/sites/gov/fairtax/Pages/default.aspx).

Also, a graduated tax system isn’t radical. The federal government, the District of Columbia and 32 states including Iowa, Missouri and Wisconsin all use a graduated tax.

In Illinois, opposition from wealthy individuals and influential business groups claim the fair tax would give lawmakers new powers to tax retirees, small businesses or the middle class; or give Springfield a “blank check” to spend without any accountability; or force businesses to leave Illinois.

Wait a doggoned minute.

The nonpartisan Better Government Association says, “Only a small share of Illinois 1.2 million small businesses would be affected by the tax plan – only those earning more than $250,000.”

Also, of course, lawmakers could raise taxes now, as they did in 2011.

As for causing an exodus, the Center for Tax and Budget Accountability reported that people don’t leave Illinois due to taxes. Instead, these migrants mostly cite a new job or job transfer, being closer to family, or housing reasons.

The leading advocate for retirees, AARP, has endorsed the fair tax.

“We believe changing to a graduated income-tax structure is a step in the right direction to fix our budget mess,” said Lori Hendren, associate state director of AARP Illinois. “The way protects older Americans but not taxing retirement incomes. Only the wealthiest will pay more.”

The fair tax may not be an easy or simple solution to the state’s fiscal problems, but the ballot question may have a simple answer after all.