Jim Dey | Study: Pritzker's tax hike more likely to force out middle, lower earners

Jim Dey | Study: Pritzker's tax hike more likely to force out middle, lower earners

One of the arguments from opponents of Gov. J.B. Pritzker's proposed progressive income-tax amendment to the Illinois Constitution is that another tax hike, particularly on upper-income earners, will encourage more people to leave the state.

But a new study conducted by Chicago's Better Government Association contends that statistics do not support that contention. At the same time, the BGA study shows that the earners Pritzker says he cares about most — middle- and lower-income earners — are the hardest hit by tax increases and most likely to leave the state because of them.

Studying the impact of the 2011 state income-tax increase, the BGA said that "the better off flourished" while "the big tax hike coincided with a steep drop in the number of low- and modest-income taxpayers, with the biggest impact downstate and in some minority neighborhoods in Chicago."

Former Gov. Pat Quinn and his colleagues in the Democratic-controlled General Assembly increased the state's income tax by 66 percent in January 2011 — boosting the rate from 3 to 5 percent.

Part of that increase was temporary, and the rate fell back to 3.75 percent on Jan. 1, 2015. The Legislature, overriding former Republican Gov. Bruce Rauner's veto, subsequently boosted the tax rate to 4.95 percent in 2017.

Pritzker, a Democrat who was elected in November, supports increasing tax rates on rising levels of income. He has proposed replacing the Illinois Constitution's flat-tax mandate with one that allows a progressive tax.

At the same time, however, that he wants to impose high tax rates on those earning income of $250,000 or more, he has offered small tax cuts — 0.20 percent for those earning less than $10,000 and 0.05 percent for those earning from $10,000 to $100,000 a year, respectively.

Specific rates, however, will not be included in the proposed amendment. The amendment would only allow the Legislature to impose a grab bag of rates on various levels of income.

The Legislature has yet to agree to put the measure on the fall 2020 ballot and could wait until next year to do. But Pritzker has been pressuring legislators to act soon, so he can move forward with his campaign for the proposal.

The BGA study focused only on the impact of the 2011 increase, which was passed with the idea of stabilizing the state's budget and paying off old bills. Instead, most of the multiple billions of dollars in new revenues went to the state's woefully underfunded public pensions — the state's finances remain a shambles.

The authors of the BGA study said the results do not support progressive-tax-plan opponents' claims that another tax increase will encourage individuals and businesses subject to higher taxes to leave.

"If past is prologue, a trove of federal data on Illinois taxpayers undercuts predictions of a stampede to the exits among residents of means," states the BGA's Tim Jones and Bob Sector.

The study cited federal records that "reveal robust growth" in Illinois tax filers with incomes of $100,000 or greater from 2011 to 2014. They said the total number of tax filers grew by just 9,000 — "an almost imperceptible one-tenth of 1 percent" — while filers earning between $100,000 and $200,000 "grew by 16 percent" and those earning more than $200,000 "rose by 29 percent."

They report that 3,618 tax filers earned $1 million-plus incomes in 2014, a 25 percent increase from 2010.

Of course, the economy in 2014 was different than it was in 2010, when the country was trying to bounce back from the near-collapse of the banking and real-estate sectors in 2008.

Those numbers can be construed as helpful to Pritzker's tax-hike campaign. But other figures the BGA produced showed that the 2011 tax hike produced more of what Pritzker dislikes — income inequality — because of the disproportionately negative impact on middle- and lower-income earners.

"More than 70 percent of Illinois tax filers reported annual incomes of less than $75,000 in 2016, and there were 300,000 fewer of them that year than in 2006," the BGA report states.

Previous studies of Illinois' outmigration, relying on income statistics, have concluded those leaving Illinois have higher average incomes than those moving into the state. That kind of exodus imposes a heavier tax burden on those who remain in Illinois.

The BGA study concluded the "falloff in low- and medium federal tax filers far exceeds the growth in the ranks of those at the top, a mismatch that speaks volumes about the predominant economic profile of those leaving Illinois."

Of course, a wide variety of people leave Illinois for a wide variety of reasons, principally better economic opportunities and lower taxes (property taxes included).

But the state of the state of Illinois also has to be considered a factor, its political and fiscal disarray a real incentive to look elsewhere.

Jim Dey, a member of The News-Gazette staff, can be reached at jdey@news-gazette.com or 217-351-5369.

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