SPRINGFIELD – Statewide, 97 percent of Illinois taxpayers will pay the same or less in state income taxes under Gov. JB Pritzker’s fair tax plan, with only 3 percent of taxpayers paying more. County-level data shows that in over half of the state’s 102 counties, less than 1 percent of filers will pay more.
The new county-level data illustrates how a vast majority of communities stand to do even better than the statewide average if the governor’s fair tax is adopted.
A few sample counties are below:
Of the over 5.68 million filers in tax year 2016, less than 18,000 millionaires will pay the top rate while 5.52 million taxpayers — 97 percent statewide — will pay the same or less in state income taxes.
See how the fair tax will affect your family at Illinois.gov/FairTaxCalculator.
In an article from Capitol News Illinois, author Jerry Nowicki said that high-ranking Illinois Democrats support Pritzker’s proposed income tax overhaul. They see it as one of three possible solutions to balancing the state’s long-term $3.2 billion budget deficit: 15 percent across-the-board cuts to all state budgets and programs, including education; a 20 percent income tax increase on every Illinoisan; or the graduated tax which they say lowers the tax rate for 97 percent of Illinoisans.
The Democrats said the governor’s plan would stabilize the state’s finances by raising $3.4 billion in new revenue, $2.7 billion of which will be paid by approximately 20,000 Illinoisans with single or jointly-filed incomes that exceed $1 million, Nowicki reported. Those making between $250,001 and $1 million would provide the rest of the added revenue, while those with incomes below $250,000 – approximately 97 percent of Illinoisans – would see a lower effective rate than they do under the current flat tax rate of 4.95 percent.
The graduated tax would require a constitutional amendment backed by three-fifths of the General Assembly and voters in November 2020. If it passes, it would give the Legislature the authority to set a graduated rate instead of a flat rate, but it would not determine specific rates.
Nowicki said opponents of the graduated tax feel that giving the legislature this authority puts too much “trust” in state government and elected Republicans have thus far remained unanimously opposed to it.
Looking back, Nowicki said the state’s income tax was enacted in 1969 at a 2.5 percent rate, and jostled between that rate and 3 percent for the next 42 years. In 2011, it was temporarily raised to 5 percent for a four-year period, dropping back to 3.75 percent in 2015. The current 4.95 percent rate hit the books in 2017.
The Democrats argued last week that a spike to a 6.95 percent rate on every Illinoisan would be necessary to avoid the 15 percent across-the-board cuts should the graduated tax amendment not pass.
State Sen. Andy Manar, a Bunker Hill Democrat who chairs an appropriations committee in the Senate, said opponents of the plan need to drop the “rhetoric” and “put their votes behind” specific cuts if they want them to be part of negotiations.
“If anyone believes that a 15 percent across-the-board reduction to state spending is the appropriate way to move forward, I would challenge them to file that budget in the House and the Senate so we can make that part of the debate moving forward,” Manar said.
But Republican Deputy Minority Leader Tom Demmer told Capitol News Illinois in March that taxes were raised twice in the last decade, while other changes were not made in the way the state operates. Demmer said his caucus would prefer to talk about the current budget year, rather than the graduated tax which would not produce revenue until 2021 at the earliest. “Simply going back to another tax increase alone is not going to solve our issue,” he said.
New study: Flat tax overcharges middle class, strains public budgets
If Illinois were to join 33 other states in adopting a “progressive” or “graduated-rate” income tax system, most residents would pay less in income taxes, property taxes could be reduced by 10 percent, the state could eliminate its structural deficit while increasing investments in education and infrastructure, and the economy would grow by as much as $8 billion per year.
These findings are part of new research by the Project for Middle Class Renewal (PMCR) at the University of Illinois at Urbana-Champaign and the Illinois Economic Policy Institute (ILEPI), which have jointly evaluated the effects of eight different scenarios for adopting a progressive income tax– including the “Fair Tax” that was recently proposed by Pritzker. The study’s methodology was peer reviewed by Professor David Merriman and Amanda Kass at the University of Illinois-Chicago and Professor Lonnie Golden, an economist at Penn State University.
“One of the key reasons why Illinois faces bigger fiscal and economic challenges than its neighbors is because of a tax system that treats $50,000 in income the same as $50 million in income,” said study co-author and University of Illinois PMCR Director Dr. Robert Bruno. “It ultimately leads to a scenario where the average middle-class family is shouldering a disproportionate share of the state’s tax burden and spending less back in the economy. At the same time, Illinois’ public services are woefully underfunded.”
The study notes that low-income and middle-class families in Illinois currently contribute almost double the share of their income in state and local taxes than the state’s top 1 percent, who have an average net income of $1.7 million per year. Low-income and middle-class families also pay a significantly higher share of their incomes in taxes than their peers in the neighboring states of Iowa, Wisconsin, and Minnesota, while Illinois’ most affluent families pay less than neighboring states. Notably, Illinois’ low-income and middle-class families have experienced negative income growth (after adjusting for inflation) since 2000, while top earners have seen their incomes rise by 35 percent on average.
“From the vantage point of low-income and middle-class taxpayers, Illinois’ current ‘flat-rate’ tax system not only makes inequality worse, it is simply not competitive with neighboring states,” said study co-author and ILEPI Policy Director Frank Manzo IV. “In Illinois, the top 1 percent makes an average of 65 times more in adjusted gross income than the bottom 99 percent, yet pays the same marginal state income tax rate.”
The authors note that, despite efforts to improve the state’s fiscal condition by raising the flat income tax rate, a $1.2 billion structural deficit persists and debt continues to mount. Meanwhile, the current system has failed to generate the revenue necessary to make investments in vital public services on par with neighboring states and the nation as a whole.
“The shortfall in state investment resulting from Illinois’ flat tax has only led to more regressive tax policies, such as hiking property taxes to fund local schools,” Manzo added. “This hurts working and middle-class families most.”
The alternative, Bruno and Manzo write, is to adopt a “progressive” or “graduated-rate” system like the ones currently used by 33 other states, including most of Illinois’ neighbors. Under this system, higher-income earners would be taxed at a higher rate than lower-income earners. Using industry-standard IMPLAN economic modeling, researchers tested a total of eight different progressive tax scenarios, including Pritzker’s “Fair Tax” proposal. If implemented in Illinois, these models showed that:
“The bottom line is that most Illinois taxpayers would see a significant tax cut, our schools and infrastructure systems would receive much-needed funding that boosts the economy, and our state government would be on stronger and more sustainable financial footing,” concluded Dr. Bruno. “In other words, moving towards a progressive income tax system is a win-win-win scenario for Illinois.”
Finally, Bruno and Manzo’s study addresses frequent criticisms of graduated-rate tax systems, calling the claims “misleading at best.” In particular, the authors highlighted the recent experience of Kansas, which suffered a series of major fiscal and economic problems after flattening tax rates. They also noted research that has shown no link between state tax rates and the migration patterns of high-income earners.
“While the opposition to progressive taxation from super-wealthy elites can hardly be considered surprising, their arguments simply aren’t supported by real-world evidence,” Manzo concluded. “The evidence does show that progressive income tax systems produce more broad-based prosperity, balanced public budgets, and a stronger overall economy. And, in the case of Illinois, it will add the critical benefit of giving most families a tax cut.”
The Illinois Economic Policy Institute is a nonprofit organization that uses advanced statistics and the latest forecasting models to analyze policy issues affecting the Illinois economy.
The Project for Middle Class Renewal at the University of Illinois investigates the working conditions of workers in today’s economy and elevates public discourse on issues affecting workers with research, analysis and education in order to develop and propose public policies that will reduce poverty, provide forms of representation to all workers, prevent gender, race, and LGBTQ+ discrimination, create more stable forms of employment, and promote middle-class jobs.