SPRINGFIELD, Ill. - Both sides in the debate over a ballot measure to change Illinois’ income tax system from a flat-rate to a graduated structure have straightforward arguments
Democratic Gov. J.B. Pritzker and other proponents call it the “fair tax” because it demands more from those with higher incomes. Those making less than $250,000 a year would pay no more than the current 4.95% flat rate.
Opponents point to the state’s history of political corruption, saying the proposal on the November ballot would loosen constitutional restraints on lawmakers’ spending.
The ballot question would amend the Illinois Constitution to discard the current income tax system, in which every individual pays the same flat rate, 4.95%, and corporations pay 7%. It would set up brackets, like the federal government and 32 other states. The tax rate would increase with income.
BIG STAKES, BIG MONEY
Campaign group Vote Yes for Fairness has $56.5 million to spend on its campaign, all from billionaire Pritzker. A group backed by labor and other advocacy groups has raised $1.9 million.
The Coalition to Stop the Proposed Tax Hike Amendment is not far behind, with $48.6 million in the bank — 97% of it coming from Chicago hedge fund manager Ken Griffin.
The state Supreme Court invalidated a graduated tax approved in the 1930s. A flat tax of 2.5% on individuals and 4% on corporations in 1969 came months before a convention began writing a new state constitution. Delegates considered a graduated tax but ultimately were wary of asking voters to endorse a constitution with a new tax setup. Subsequent plans failed before Pritzker, who campaigned on the issue in 2018, got approval to put the question on the ballot.
Voters don’t get to choose the rates. The General Assembly approved them and they would take effect Jan. 1.
Marginal rates for single filers are:
—4.75% on the first $10,000 in income;
—4.9% on income from $10,001 to $100,000;
—4.95% on income from $100,001 to $250,000;
—7.75% on $250,001 to $350,000;
—7.85% on $350,001 to $750,000;
—7.99% on all income over $750,000;
Joint filers pay the top rate after hitting the $1 million mark.
The tax on corporations would increase to 7.99%
Proponents say that a flat tax falls heavier on lower incomes than it does on the wealthy. Vote Yes For Fairness cites statistics showing that most taxpayers — those earning $22,000 to $110,000 — pay 12% to 13% of their income in taxes, while the wealthiest, earning more than $537,000, pay 7.4%. With the approved rate structure, the 97% of taxpayers who earn less than $250,000 would pay no more than the current 4.95% rate.
Opponents point out that the rates wouldn’t be enshrined in the constitution, allowing lawmakers to increase taxes at any time. They can do that now, and just did, by 33%, in 2017. But critics say the new structure would make it easier for lawmakers to tinker with different brackets. Raising one rate on all taxpayers is more difficult than hitting just one bracket, they say.
The change would generate an extra $3.4 billion in revenue, Pritzker says. He’s promised to use it to fix Illinois’ finances. Past-due bills total $7.7 billion and there’s a $140 million shortfall in what’s necessary to cover promised pensions to state employees. The budget that took effect in July left a $5 billion gap, with lawmakers still hoping for a second federal-relief package to fill it.
Opponents describe the tax plan as a “blank check.” They say there’s nothing in the amendment that requires fiscal restraint. They contend Democrats overspent and skipped pension payments in the past two decades and contributed to a two-year budget stalemate that put Illinois so deep in the hole.
‘FAIR TAX’ FLIGHT
A study commissioned by the Illinois State Chamber of Commerce found the new structure would reduce annual household income by $1.8 billion and reduce consumer spending by nearly 1% because high earners would leave the state. The study says the hardest-hit industries, such as hospitals and hotels, would mean job losses for the women and minorities who account for large portions of their rosters.
But Illinois’ top marginal rate of 7.99% would put it 10th among states with graduated tax structures, lower than Minnesota and Iowa and slightly higher than Wisconsin. Proponents say other states that heavily tax the rich haven’t seen major out-migration.
Opponents recently have suggested the proposal could open the door to lawmakers taxing some retirement income.
The anti-amendment Illinois Policy Institute filed a lawsuit Monday saying language in a state-issued explanatory flyer isn’t clear about the potential impact on retirement income. The lawsuit references a remark in June by Democratic state Treasurer Michael Frerichs, who said approving the amendment would make it easier to tax six-figure retirement income, according to the (Arlington Heights) Daily Herald.
Frerichs denounced “misleading statements” in the “politically motivated lawsuit,” and said he opposes a retirement tax.
Approving an amendment to the Illinois Constitution requires three-fifths majority approval, or 60%, of all who vote on the question. If everyone taking a ballot voted on it, it would require a simple majority.