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.
The real flim-flam is sensationalistic clap-trap.
According to the IDOR's "2010 Individual Income Tax Returns Filed By Net Income" (the most recent available online at the time of this post), those earning wages between $100,000 and $500,000 comprised 31.69% ($2.9 billion) of the total tax income. The next higher group (the highest) made up 18.14% ($1.66 billion).
One point I do agree with is that some states that exercise progressive tax rates have outlandishly high rates for low- and middle-income brackets. I am not going to defend any of the people named in this article, but I do know that it is impossible to have a productive conversation until we know the facts. The comment about stripping the super rich and leaving them bare is utter nonsense.
So instead of poking holes and complaining, let us figure out alternatives that make sense. First and foremost, the biggest question is what the heck does Illinois do with $38 billion (Annual Report of Collections and Distributions 2012) of collected taxes?!? Or if we look at only Income taxes, that is still a whopping $21 billion (2012). So assuming (big assumption) we do not change the money going out, what makes sense to alter how it comes in? What if we took the 5 tax brackets of (for instance) Wisconsin or the 6 Federal tax brackets and changed the percentages a little bit. I understand nobody wants to pay more money in taxes, so I ask, what is right and fair? Does it not make sense to ask those with significantly more discretionary income to help out those who struggle day by day? If not, then what do you propose?
Paying attention to, analyzing and holding the state accountable for monies spent should be the first priority. After that, we can see what this constitutional amendment is all about (details needed).
-- charles schultz
So here is a "crazy" scenario using the 2010 data.
Bracket: Less than-$25,000
Tax: 0%
Total Tax Difference from 3%: -$730,337,059.00
Bracket: $25,001-$50,000
Tax: 1.25%
Total Tax Difference from 3%: -$692,264,121.74
Bracket: $50,001-$100,000
Tax: 2.5%
Total Tax Difference from 3%: -$362,767,116.05
Bracket: $100,001-$500,000
Tax: 3.75%
Total Tax Difference from 3%: $727,196,289.10
Bracket: $500,001 OR MORE
Tax: 5%
Total Tax Difference from 3%: $1,118,325,940.20
I throw this out there for the sake of contemplation and discussion. Understandably, those in the higher brackets are going to "feel" that this is unfair, that they are supporting all the freeloaders at the other end of the bracket. And that is a very real obstacle, because it is my observation that those in the higher brackets have a much louder and more powerful voice than those at the lower end.
To reiterate, the more important question is about what the State does with the money. If we are so concerned about the individual percentage points, especially for the high-income brackets, then it seems to me the fight should really focus on reducing taxes for everyone.
The last paragraph says it all. If the Illinois Constitution must be changed for a progressive tax structure, it can be changed to greatly reduce the greatly inflated public pensions. Why should anyone pay more taxes at a higher rate so their neighbor can retire at age 52 with gold plate d health benefits, 3% cola, and 80% of an inflated final paycheck? We should be talking about that not further robbing of the taxpayers.
Citizen1; your comment is total nonsense. No state employee can retire at age 52 with 80% of "an inflated final paycheck". State employees pay taxes just like other citizens. The "inflated public pensions" do not exist. The State of Illinois as the employer did not make pension payments for years. The state employees made their payments with every paycheck. No one is robbing you. Your robbing the employees.
The comments prior to yours are correct. The legislature, and governor need to be held accountable in public for the state's spending. Pork barrel spending must stop. Grants must stop. Tax breaks for corporations must stop. Revenue needs to be raised. The revenue will be in part an increase in taxes. I am retired. Just like any retired person in Illinois whether public sector retiree, or private sector retiree; I am not required to pay state taxes. That needs to change. Retirees need to be taxed on their income just as they are on federal taxes.
Citizen1; get your facts straight before trying to express you hatred toward the people who guard you from danger; and provide services to you, and your family.
sacrophyte; Thank you for your comment.
Agreed. I don't necessarily have a problem with a progressive tax (as a matter of fact, I generally support them). Still, I would like to see appropriate spending within this state instituted BEFORE any other major tax reform.