Graduated income tax proposal wrong for state taxpayers

Graduated income tax proposal wrong for state taxpayers

By Jason Barickman

When Illinois adopted the income tax in 1969, it was designed as a low, flat-rate tax that would treat all taxpayers fairly. Everyone, regardless of income, would pay the same percentage rate. The concept was so important that it was written into the 1970 state constitution.

Now, some groups and politicians are proposing to replace the single flat rate with graduated tax rates. That would inevitably lead to higher taxes overall. Before any changes are made, one must ask whether our state government deserves more of our hard-earned money. I don't believe it does.

In 2011, Gov. Pat Quinn and the Chicago Democratic leaders in the General Assembly pushed through the largest tax increase in state history, promising the revenue would be used to pay off the state's bills and solve our financial problems. After passing the supposedly temporary tax hike, Gov. Quinn thanked approving lawmakers "for taking strong action to confront our fiscal crisis and provide the revenue and reforms needed to stabilize the budget, pay our bills and jump start Illinois' economy."

Yet, where do we stand nearly three years later?

Despite the promise to pay down bills, that has not happened. Illinois has billions of dollars in unpaid bills. Illinois has the worst-funded pension systems in the nation, with estimated unfunded liabilities surpassing $100 billion. Illinois' credit rating has been downgraded five times since the tax increase in 2011. We now have the worst credit of any state in the nation. The statewide unemployment rate was 9.2 percent in August, which is unfortunately well above the national average of 7.3 percent.

The 2011 tax increase did not solve the state's problems. In fact, we face even greater fiscal challenges today than we did then.

Quinn and his Democrat allies want you to believe that a shift from our flat tax would generate a substantial increase in revenues without a substantial impact on you. If that sounds too good to be true, you're right. The reason is simple: there will never be enough taxpayers to satisfy government's unending thirst for your tax dollars. To get the money that Chicago Democrats who control our state want to spend, or have already spent, will inevitably mean dipping deeper into the pockets of middle-class families.

Proponents of a graduated income tax imply the bulk of the revenue would be generated by increasing taxes on the state's richest citizens. But they want Illinois to authorize a graduated tax without revealing what the actual rates would be.

Fortunately, we can look to the example of other states to get a good idea of the impact.

According to the nonpartisan, independent Tax Foundation, California's top rate is more than 13 percent, but those making more than $48,942 have a tax rate of 9.3 percent. Montana has six brackets in its state income tax, with the highest being 6.9 percent on incomes over $16,000. In Missouri, those with incomes over $9,000 pay 6 percent. Wisconsin has a top rate of 7.75 percent, but those with incomes above $10,750 and $21,130 pay at rates of 6.15 percent and 6.5 percent, respectively.

The reality is the wealthy elite are too few, and states with a graduated income tax inevitably levy higher taxes on low- and middle-income families. There is no reason to think circumstances would be any different in Illinois.

There are two general paths to growing state tax revenues. As Quinn and his allies have suggested, you can take a higher percentage of dollars from workers trapped in a stagnant economy. Alternatively, you can take a smaller percentage from taxpayers with incomes that are rising due to a thriving economy.

A broad-based, low rate flat tax provides the least incentive to evade, avoid or otherwise not report taxable income. It's simple. Why would Illinois want to trade this simple, one-rate system for one modeled after the federal government's unbelievably complex, unpredictable, costly and unfair tax system?

Lawmakers must focus on creating a healthy, stable environment where jobs are created for lower- and middle-income families. It's through fiscal restraint and economic growth that Illinois will solve its financial problems, not through increased taxes to reward an inefficient government that doesn't deserve any more of our tax dollars.

State Sen. Jason Barickman of Bloomington serves the 53rd District in the Illinois Senate, which includes all or portions of Ford, Iroquois, Livingston, McLean, Woodford and Vermilion counties. Learn more at http://www.jasonbarickman.org.

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Jimmer wrote on October 21, 2013 at 4:10 pm

I must respectfully disagree with Sen. Barickman about the graduated income tax.  We've been told again and again the climate in Illinois is driving people and businesses to Wisconsin, Indiana, and other states.  Yet now we are offered Wisconsin's graduate income tax as an example of what we ought not do in Illinois.

The Senator and other opponents of a graduate income tax neglect to point out that those high rates they are quoting are marginal rates, paid only on income above the listed level.  That's precisely the way our federal income tax works.  To imply that the top rate is paid on all income is disingenuous.

That said, the examples provided do seem to show that the top rate is achieved at much too low an income level in most states, but that's a problem of implementation, not a flaw in the concept.  Most of the US operates on the principle that those who earn the most should also pay the most,  The Illinois flat income tax denies that principle.  A progressive income tax is the fairest income tax and can be implemented appropriately.

On one point, I do agree with the Senator.  Government at all levels has an insatiable appetite for more money.  Illinois has operated for decades without actually raising the tax income needed to fund the services provided.  How is this possible?  By "borrowing" from the money that was legally required to go to the pension systems.  That's the only definitive cause of the current pension "reform" frenzy, and to resolve the problem by taking benefits away from the very people whose money was already taken and not repaid, is not onlyl unconstitutional, it's immoral and wrong.  I hope the Senator will revise his thinking and get on the side of fair, constitutional change, which has yet to be proposed in either body of the General Assembly.