Progressive tax flim-flam
Beware of legislators pushing tax hikes under the guise of saving you money.
Hang on to your wallets, because the politicians are coming after your money once again — all in the name of progress, of course.
It's called the progressive income tax, escalating rates of taxation as income escalates. Illinois has a flat income tax rate of 5 percent while 34 states have a progressive state income tax.
Gov. Pat Quinn, state Rep. Naomi Jakobsson, D-Urbana, and state Sen. Michael Frerichs, D-Champaign, among others, are backing a proposed state constitutional amendment to shift Illinois from a flat tax rate to progressive tax rates. It very well could be approved this year or next by the General Assembly and then put up for a public ratification vote in the 2014 election.
They sell it as a means of lowering state income taxes on most people while generating a substantial increase in revenues. That's enough right there to raise suspicions.
The devil, of course, is in the details. But legislators won't even get to them until the amendment is sold to voters and the specific tax rates are addressed in subsequent legislation.
So beware of politicians making promises about the amendment's effect. Jakobsson insists that the state income taxes of most people would go down. On what basis can she make such a specific claim on an imaginary proposal?
Jaskobsson said recently she doesn't think that rich Illinoisans whose state income taxes would be increased dramatically would be tempted to leave the state.
Why not? Some have left already. People routinely leave high-tax California and New York for low-tax Florida and Texas. Why would the Land of Lincoln be exempt from that phenomenon?
But here's the most important reason that Jakobsson's promises of lower taxes for most people should be viewed with extreme skepticism — what she devoutly pledges would happen here has not been the case in other states with progressive rates.
Jakobsson is essentially promising a low tax rate for most wage earners and a really big one to sock those who earn huge incomes.
But try these numbers on for size.
Virginia has four brackets in its state income tax — the highest being 5.75 percent on incomes of more than $17,000.
The District of Columbia has four brackets — the highest being 8.5 percent on incomes over $40,000.
Montana has six brackets — the highest being 6.9 percent on incomes over $16,400.
Critics might say those are not large industrial states like Illinois. Both neighboring Michigan and Pennsylvania have flat taxes, 4.25 percent and 3.07 percent, respectively; both are lower than Illinois.
Of Illinois' six neighboring states, only Michigan and Indiana (3.4 percent) have flat taxes.
The other four (Missouri, Wisconsin, Kentucky and Iowa) and have progressive taxation.
Missouri has 10 tax brackets — the highest being 6 percent on incomes over $9,000.
Neighboring Wisconsin has a progressive income tax that applies a 7.75 percent rate on incomes above $232,660. But it also applies rates of 6.15 percent and 6.5 percent on incomes above $10,750 and $21,130, respectively.
Kentucky has five rates, the highest being 5.8 percent above $8,000 and 6 percent for income above $75,000. Iowa has nine rates, the highest being 8.98 percent on income above $64,755.
Two other big states also hit low- and middle-income earners hard.
California just raised its top state rate to more than 13 percent. But the 9.3 percent rate kicks in on an individual taxpayer's income above $48,942. New York's progressive rate is 6.45 percent on income above $20,000.
Why do all these states with progressive rates levy high taxes on low- and middle-income earners? Because that's where the money is. There aren't enough of the super rich for the tax authorities to strip and leave bare.
It would be no different in Illinois.
Those who believe the state needs a huge increase in income tax revenue, as Jakobsson and Frerichs do, and that Illinois should get it by levying progressive tax rates are well advised to support this plan. But no one — repeat no one — should buy their story that this is a way to reduce state income taxes on most earners, particularly low- and middle-income earners.
That hasn't been the case elsewhere, and it won't be here.