Progressive rates flatten taxpayers

Progressive rates flatten taxpayers

Let the great tax-rate debate begin.

Democratic gubernatorial candidate J.B. Pritzker wasted no time laying out one of his key campaign themes Monday when he visited Champaign-Urbana, embracing a position on taxes that puts him and his fellow Democrats sharply at odds with Republican Gov. Bruce Rauner.

Pritzker favors amending the Illinois Constitution to eliminate the flat income tax mandate in favor of a progressive income tax. Under a progressive tax, individuals and families pay ever-higher rates as their taxable income climbs.

He said the "millionaires and billionaires and those who can afford to pay" should be subject to higher taxes on their income as opposed to those who "make 20 and 30 and 40 and $50,000 a year."

Pritzer won't get much of a fight on the issue from his Democratic rivals for their party's gubernatorial nomination. It's a different case altogether from Republican incumbent Rauner, who considers maintaining a flat tax as necessary to expanding the state's economy.

Their contrasting positions on taxes will be just one of many issues voters can consider in making their choice in the November 2018 general election.

But there's a lot more involved in the issue than traditional campaign talk about sticking it to the "millionaires and billionaires." Indeed, progressive tax rates around the country show that millions of ordinary people with seemingly ordinary incomes get swept up in the tax dragnet supposedly aimed at the super-rich.

Thirty-four state have progressive income taxes. A handful of states — including Florida, Texas and Washington — have no state income tax. The rest have a flat tax, including Illinois, Michigan and Indiana.

What's the best course to take? Well, that debate has been going on for decades.

Federal income taxes are assessed based on a progressive model, although the trend over the past 40 years has been to have fewer and flatter rates.

But on one aspect of the debate, there is little to no debate. Tax collectors get most of their money from the middle class because there are so many more middle-income earners than high-income earners.

The numbers clearly demonstrate why voters should be wary of the soak-the-rich rhetoric that will be prominent in next year's campaign.

Illinois is surrounded by six states — Indiana, Iowa, Kentucky, Michigan, Missouri and Wisconsin.

The Land of Lincoln levies a flat 3.75 percent state income compared with a flat 3.3 percent tax in Indiana and a flat 4.25 percent rate in Michigan.

The other states — Iowa, Missouri, Wisconsin and Kentucky — all have multiple rates that increase with an individual's income. But their higher rates start at very low income levels.

Iowa has nine rates — from 0.36 percent up to 8.98 percent. Its first rate that exceeds Illinois' 3.75 flat tax is 4.5 percent and applies to incomes up to $13,986 (for the 2016 tax year). It hits 6.48 percent at $23,311, 6.8 percent at $31,081 and 8.98 percent at $69,931 and up.

Missouri has 10 separate rates. At 4 percent, it exceeds Illinois' flat 3.75 percent rate beginning at $5,001. Its highest rate — 6 percent — applies at $9,001.

Kentucky has six rates — 2 percent up to 6 percent. Its 4 percent rates applies to income over $4,000, 5.8 percent to income over $8,000 and 6 percent rate to income over $75,000.

Wisconsin imposes four rates — starting at 4 percent for incomes from zero to $11,120 (filing single). It increases to 5.84 percent for incomes up to $22,230, 6.27 percent on incomes between $22,230 and $244,750, and 7.65 percent on income exceeding $244,750.

Our neighbors with progressive income taxes impose rates well in excess of those in Illinois.

But larger states like California and New York — states Illinois politicians mimic on policy issues — impose even steeper rates.

California imposes nine rates, starting at 1 percent and climbing to 12.3 percent. Its 4 percent rate starts at $19,001, while its 8 percent rate starts at $41,629. It hits 9.3 percent at $52,612 and climbs steadily for six-figure earners from 10.3 percent for $268,750 and up, to 12.3 percent for incomes over $537,498.

New York is similar, imposing eight rates that start at 4 percent and climb to 8.82 percent. In other words, its lowest rate — 4 percent — already is higher than Illinois' single 3.75 percent rate. New York's 5.9 percent rate starts at $13,850, its 6.65 percent rate at $80,150.

There is, of course, a certain logic to the progressive system — the egalitarian claim of fairness based on income. But legislators are much more influenced by the desire for income than they are for so-called tax fairness.

That's why they talk about hitting the millionaires and billionaires and those who can "afford" to pay more and then target Joe Sixpack with onerous rates on low and average incomes.

Bear that in mind as the progressive tax rate debate unfolds. What politicians promise isn't always what they deliver.

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ratiocination wrote on April 20, 2017 at 8:04 am

Poor reasoning on the part of the NG editorial board again.

It is possible to have a progressive tax structure without following the same levels that other states have adopted.

However, what the NG just seemed to acknowledge in clear, numerical terms that Illinois has a remarkably LOW income tax rate relative to almost every other functioning state. Unlike those neighboring states that can provide basic services and support higher education, Illinois is not a financially functional state. Perhaps it follows that we actually need to raise taxes in one way or another in order to have a functional state.

CommonSenseless wrote on April 20, 2017 at 9:04 am

What IL lacks in income tax, they more than make up for in property and use/sales tax. How come all you progressive tax proponents always forget that little bit?

ratiocination wrote on April 20, 2017 at 9:04 am

You are absolutely right, and I'm no fan of high property taxes, because they are an obstacle to home ownership and upward mobility. However, the low state income taxes and high property taxes are directly related: local municipalities have to adopt high property taxes in order to pay for public schools, because the state does not support education adequately due to low/flat income tax rates. The governor's own administration did a study that showed that we are among the worst states in support for public education (and now higher education too). The obvious reason: we are not collecting enough money to pay for it. Cities have to fill the gap with high property taxes, which is an awful way to fund education, because it exacerbates inequality: poor neighborhoods have poor schools.

CommonSenseless wrote on April 20, 2017 at 10:04 am

IL spends more than most states per student (top 13th in US, I believe). It isn't a money issue, it's where the money is going. Administrator pay and pensions are tanking the education budget. Multiple layers of redundant bureaucracy, exceedingly high salaries and pension boosting schemes in later years of employment are creating a tidal wave of pension demands. Education needs to be bulldozed and reset.

DAmac wrote on April 20, 2017 at 6:04 pm

Common Senseless, average expense per student is one way, but not necessarily the best way, to rank education spending by states.  Cost-of-living rates vary greatly among states ... and the range of per/student expenditures also varies greatly within a state (look at the range in Illinois!)

Another way to look at how commited a state is to Education is to look at what percentage of the total state budget goes to Education.  Unfortunately, Illinois has always ranked very low among states--currently it is still the 4th lowest in the country at 22.9%.


CommonSenseless wrote on April 21, 2017 at 8:04 am

These figures are adjusted for regional cost of living. IL is above average on spending per student. However, a majority goes to non-instructional expenses related to administration and pensions. The idea that comparing relative percentages of overall state budget, just proves IL has too much money from its taxpayers. Hence why IL has the highest tax burden in the land.

Citizen1 wrote on April 21, 2017 at 9:04 am

Illinois taxpayers think they are funding education but what they are really doing is funding teachers pensions.  Without pension reform, education spending will be tipped away from the basic role of schools to educate children.


Illinois tax returns start with the taxble amount from the federal return.  Federal income tax needs reform.  It skews income especially for flow through entities and their owners.  To add a progressive tax on top of that will drive out what few companies are left.

Sid Saltfork wrote on April 25, 2017 at 5:04 pm

The previous tax rate was making a difference, but both parties allowed it to expire.  The Rich found their protector in fellow billionaire Rauner.  Now, the battle is on between those who want a 15% corporate tax rate as Trump has proposed nationally, and those who see services to the most at risk continue being cut unless a progressive tax is passed.  Might as well re-instate the previous rate, and legalize pot with taxes.

Of course, the drooling howling mob wants earned pensions stolen which will not happen.  The state supreme court has already ruled on that.  What promotes hate toward teachers?  Maybe, Jack is a dull boy......

BruckJr wrote on April 25, 2017 at 9:04 pm

A temporary tax was 'allowed' to expire.  Seems pretty logical to me.