Stadelman
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Stadelman

Illinois Needs the Fair Tax

Adopting a progressive income tax will give a tax cut to 97% of Illinoisans while increasing revenues for the state by having the wealthy pay a fair share.

The Fair Tax Campaign’s Logo

For Illinois voters, there will be a question on the ballot that asks whether the state should repeal the flat tax adopt a progressive income tax structure. The right answer to this referendum is “Yes.”

Illinois currently has a flat 4.95% tax rate, which applies to all incomes equally. This has led to Illinois being one of the most regressive tax structures among states in the country, meaning that middle and lower income residents pay a substantially higher proportion of their income on taxes than wealthier residents. Adopting a progressive income tax would grant the state the ability to change that. Anyone making less than $250,000 would pay the same or receive a tax cut, while the rate then goes from 4.95% to 7.75% for those making over that amount.

Brackets for the progressive income tax (Civic Federation)

To clarify, the higher tax rates only kick in for income AFTER $250,000. So if you make $300,000, only $50,000 will be taxed at a higher rate, while the first $250,000 will be taxed at the appropriate lower brackets, between 4.75% and 4.95%.

The Fair Tax also comes with companion legislation that would expand the state’s property tax relief credit from 5% to 6% and a provides a child tax credit of up to $100 per child for single filers under $80,000 income and joint filers under $100,000 income.

This seems like a no-brainer for Illinois, as most other states in the Union, including surrounding Midwest states, all have progressive income taxes. Iowa and Minnesota have higher top rates of 8.53% and 9.85% respectively, which kick in at lower individual income levels of $73,710 and $164,400 respectively. Illinois’ proposed top rate would be 7.99% at individual incomes over $750,000. Wisconsin’s top rate sits at 7.69%, kicking in at $263,480 of individual income — comparably similar to Illinois’ proposed 7.75% at $250,000.

Illinois ranks 8th in most regressive taxes among states (ITEP)

However, the anti-fairness allies have run an effective campaign rooted in deception. There are a few claims, ranging from disingenuous statements to blatant lies, made by the “No” campaign and its supporters that need to be addressed, which are often repeated in their numerous advertisements:

1. There are no new taxing powers given to the General Assembly in passing this amendment. While the ads have resorted to fear-mongering about the amendment giving so-called new powers to spooky Springfield politicians, the reality is that the state already can raise taxes whenever it wants. There is no such thing as a “protection” from lawmakers raising taxes on people with a flat tax or in any income bracket. This is a constitutional power they have always possessed.

2. The anti-fairness ads claim that the brackets “allow an opening for taxing the middle class down the road” but the reality is that if the middle class was going to be taxed more, a flat tax isn’t going to protect them. Taxes are going to be raised on everyone. That’s what a flat tax does. Changing who bears the tax burden to wealthier residents significantly decreases the risk of a middle class tax hike. Historically, states with progressive tax structures are more than twice as likely to cut rates as to raise them.

3. Contrary to the talking point that the Fair Tax would remove “protections” on retirement income, there is currently no “protection” on retirement income in Illinois, and the progressive income tax has nothing to do with that prospect. Enacting the amendment will not remove a barrier between lawmakers and taxing retirement income because there is none. Lawmakers actively choose to not tax retirement income because it would be politically suicidal. A progressive income tax doesn’t change that.

4. The Fair Tax opponents claim that the change in tax structure will hurt small business. Despite the fact that almost all small businesses will not be effected by this change. The Governor’s office, from IRS data, estimates that at least 95% of small businesses will face no tax increase. What about that other 5%? Small businesses in Illinois register their profits as pass-through income — meaning that it is taxed as its owners’ personal income. If a small business were to be effected, they’d have to, after all costs are accounted for, profit over $250,000 annually for the owner or each shareholder, and even those increased costs would be minimal and among the small subset of small businesses that are incredibly lucrative.

5. Conservatives at large claim that this change in tax structure would further cause people to leave the state. But it’s been proven time and time again that tax increases don’t cause wealthy residents to move. Moreover, the groups most likely to leave Illinois are lower and middle income people, who would all be receiving a tax cut under this new structure. The top 6 metro area destinations for wealthy Illinois residents who do leave? In descending order: New York, Houston, Los Angeles, Twin Cities, Denver, and Washington, DC. Four of which have higher tax rates than the proposed amendment for Illinois. Not exactly tax minimizing behavior.

Fear works. And Illinois’ history of dysfunction and corruption, from the days of Rod Blagojevich through Bruce Rauner, has understandably left a bad taste for Springfield in many Illinoisans’ mouths. But this amendment is a needed transformation in further progressing what has already been a more functional, productive Illinois.

The reality is that the state needs revenue to face the fiscal challenges ahead — primarily from pensions which constitutionally can’t be cut. If we’ve learned anything from the Rauner years, it should be that cutting funding, often considered to be “waste” by those who don’t rely on social services or state school funding, isn’t the solution beyond what has already been reasonably done. Illinois ranks 33rd in state spending per capita. A far cry from being the irresponsible money burner that conservatives often preach.

By voting No, the only thing people are protecting are wealthy people from paying more. Opponents of the Fair Tax and their rich allies have been quite literally making up lies about the Fair Tax to protect themselves. Illinois richest man, Ken Griffin has spent nearly $50 million of his own money to strike it down. Don’t fall for it. Vote Yes.

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