Editorial | Tentative tax rates revealed

Editorial | Tentative tax rates revealed

New Gov. J.B. Pritzker is trying to reassure voters about his plan to raise state income taxes.

Pritzker last week took a major step forward in trying to sell taxpayers on his progressive income-tax plan by releasing proposed rates that leave most people alone but punish upper-income earners.

In doing so, however, Pritzker abandoned his campaign rhetoric that only super-wealthy people — "We ask people like Bruce Rauner and me to pay a little bit more" — would be affected.

His new definition of the super-rich is much more flexible. It targets those who earn more than $250,000 a year. That's a substantial income. But it's far less than the multimillion-dollar annual incomes that Pritzker, a multibillionaire, and former Gov. Rauner, a multi-multimillionaire, enjoy.

Nonetheless, Pritzker's proposed amendment to repeal the Illinois Constitution's flat-tax mandate and permit legislators to levy rising rates on rising levels of income does meet the most important political qualification. It allows a larger majority of voters to target a small percentage of taxpayers with a nearly 60 percent state income-tax increase. What could be more satisfying?

Pritzker pointed out that under his plan, 97.3 percent of taxpayers either will get a very small income-tax cut or no increase, while 2.7 percent of taxpayers will get a very large increase if voters pass the progressive-tax amendment. Pritzker has hailed his progressive income-tax plan as the solution to Illinois' numerous fiscal problems — repeated deficit budgets, $133 billion in underfunded pensions and "$15 billion in debt associated with unpaid bills." He's stated that it will solve all of the state's financial woes "forever."

Pritzker, who calls his plan the "fair tax," estimated it would generate an additional $3.4 billion a year in new revenue. The soonest it can be put to a vote is November 2020. To become law, it must receive a supermajority from voters — 60 percent or more.

The state's current flat-tax rate is 4.95 percent. It was 3 percent in 2011.

Under Pritzker's plan, those earning $10,000 or less would receive a minuscule reduction of 0.2 percentage points and pay a 4.75 percent rate.

Those earning between $10,001 and $100,000 would receive a more minuscule cut of 0.05 percentage points and pay a rate of 4.9 percent.

Those earning between $100,001 and $250,000 would pay the same rate as they do now — 4.95 percent.

From there, the tax rates dramatically increase.

Those earning between $250,001 and $500,000 would pay a 7.75 percent tax rate.

Those earning between $500,001 and $1 million would pay a 7.85 percent tax rate.

Those earning above $1 million a year would pay a 7.95 percent tax rate. One of the catches in Pritzker's plan is that once it reaches $1 million, an individual's entire income is taxed at 7.95 percent rate.

Pritzker also is promising a 20 percent increase in the property-tax credit and a $100-per-child tax credit.

The child credit could be beneficial to large families. But the property-tax credit doesn't amount to much. For example, an individual with a $5,000 property-tax bill currently receives a $250 state income tax credit. Under Pritzker's proposal, that credit would rise to $300.

There is nothing magical about the proposed tax rates — if the amendment passes, they can be changed at any time by the governor and legislators. So what is palatable to most taxpayers today may easily become toxic if voters give legislators the legal authority to set new tax rates any time they wish.

Pritzker's plan would also increase the corporate tax rate from 7 to 7.95 percent, a rise of 14 percent.

Legislative Democrats, who hold a supermajority in both the House and Senate, have indicated they will move quickly to put the amendment on the ballot. It takes the approval of 60 percent of legislators to do so, a number Democrats can easily achieve.

They also have indicated they may pass the new tax rates into law in separate legislation, a contingency they suggest should reassure taxpayers about their intentions and allow the higher rates to be quickly implemented if the amendment passes.

House Republican Leader Jim Durkin issued a statement that "the House Republican Caucus stands united in opposition to a $3.4 billion tax increase on Illinois families and businesses." But there are so few Republicans in the House and Senate that they are, for the most part, irrelevant.

Public-employee labor unions were quick to support Pritzker's tax plan, with the Illinois Federation of Teachers and the American Federation of State, County and Municipal Employees issuing statements of support.

But critics of state government and business groups suggested that raising income and corporate taxes will further undermine the state's business climate and targeting upper-income earners will encourage more of them to leave the state. Further, they argue, legislators whose irresponsible financial decisions have brought this state to its knees can't be expected not to increase rates if they get the authority to do so.

"We can't trust Springfield politicians — the same people who in the last eight years have raised taxes twice — with a blank check," said Ideas Illinois Chairman Greg Baise, charging that the proposal is a "massive jobs tax" that will "destroy the Illinois economy and further accelerate people fleeing the state."

Pritzker and Baise are both addressing public trust — the key issue in the countdown to November 2020.

Pritzker is trying to earn voters' trust by disclosing rates, while opponents insist the governor's promises, in the famous words of Samuel Goldwyn, aren't worth the paper they're printed on. The governor has a tough sales job ahead of him. But his political approach of encouraging the many to target the few is an effective way to begin.

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