Tax Rate Question Comes Down to Who You Ask
Governor JB Pritzker speaks in favor of a graduated income tax ballot question, which he and supporters have branded a “fair tax.”
Groups supporting and opposing a proposed constitutional amendment to change Illinois’ income tax rate from its current flat rate to a graduated income tax seem to agree—either taxes go up for the rich, or for everybody, in 2021.
The 1970 Illinois Constitution locked in language that all residents would pay the same rate, regardless of income. Since then, the amount paid to the state has changed, exemptions have changed, but the rate has always been the same for everyone. The rate is currently 4.95%, meaning a person who makes $100,000 has a gross tax burden to the state of $4,950, and a person making $10,000 pays $495.
But Quentin Fulks, Chairman of the “Vote Yes for Fairness” committee, funded in large part by Governor JB Pritzker, says the current flat rate is “fundamentally unfair” and is punishing lower and middle income families in Illinois.
“Our current flat tax system isn’t working. It allows millionaire and billionaires to pay the same tax rate as grocery store clerks, nurses, and teachers. It places more of a burden on middle- and lower-income families in the state of Illinois, and we need to do something to lift that burden off of them,” he said.
But Steve Rauschenberger, a former State Senator from Elgin who is a co-founder of the “Vote No on the Progressive Tax” coalition, says changing the state income tax from flat to graduated will allow legislators to politicize taxes even further.
“When you remove that one rate protection and allow [politicians] to have an unlimited number of rates and brackets on both individuals and corporations, they’re going to be politicizing the income tax. [They’d be] selecting the taxpayers they think politically they can raise taxes on without consequences.”
Of course, both sides are playing to their political bases on issues from tax rates to spending. Fulks says the issue isn’t spending.
“We have a revenue problem. If you look at the structural spending that is demanded in Illinois, meaning things that have to be funded, those things make up a majority of the budget, he says. “When you talk about discretionary spending, or spending the legislature can actually cut, those are things a lot of people rely on.”
According to state data, the state general fund budget, which includes most non-mandated federal spending, increased from around $39 billion in fiscal year 2020 to around $40 billion in the current year. An additional around $75 billion in spending is made up of federal trust funds, state trust funds, and highway dollars, which can’t be spent on other programs.
Fulks points to the COVID-19 pandemic to show how disproportionately middle and lower income earners are impacted.
“People who were struggling before are struggling even worse now, and we have to decide where the revenue to fix these problems is going to come from,” he says. “We believe that should come from individuals who can afford to pay a little bit more to make Illinois a place where everybody can succeed.”
Rauschenberger says it will be impossible to cut the state budget out of the mess, but says lawmakers need to cut before they raise taxes.
“Revenue is going to be part of any solution for the state of Illinois, but it’s not the beginning of the solution. Springfield leadership today has their priorities reversed,” he says. “We first need to deal with the cause of the problems, to face up to the problems we have in the structure of the pensions, [and] we need to face up to the fact that for more than 12 years, Mike Madigan and the House Democrats have passed unbalanced budgets, regardless of who the governor was.”
Fulks says Rauschenberger and opponents to the amendment are trying to frighten voters.
“Our opponents love to fearmonger and say this is going to make it easier for Springfield to raise taxes, or make it more likely, but that’s simply not true,” he says. “The legislature has the power to raise taxes whenever they want. The only difference is if they went into session right now and raise taxes, they would be raising it on everyone. What they can’t do right now is raise taxes on wealthier individuals who make a little bit more and give them a higher tax rate and lower tax rate on lower income individuals.
Fulks admits state officials are asking voters for trust that their message that 97% of taxpayers will receive a tax cut or have their income tax increase stay the same, as there is nothing binding Democrats to those figures.
“I think it’s a very dangerous thing to hand the current legislature to change the tax rates any way they want,” says Rauschenberger. “They’ve demonstrated clearly more revenue only leads to more spending.”
Certainly, with an expected budget deficit due to COVID-19 revenue impact, the legislature will be asked to approve a tax increase in 2021. The voters get to decide where the additional burden will fall.