Vote ‘no’ on the graduated income tax

Voting in favor of the progressive tax requires a leap of faith—a belief that Illinois politicians can be trusted to shepherd these new resources responsibly. Sadly, Illinois pols have done nothing to earn that trust.

September 18, 2020 Crain's Chicago Business
By Editorial Board

Illinoisans are being asked to fork over another $3.6 billion in no-strings-attached money to the very people who have so flagrantly mismanaged our collective finances for decades.

That’s the conundrum voters face this election season as they consider Gov. J.B. Pritzker’s “Fair Tax” amendment to the state constitution, a referendum that’s been the subject of a blizzard of TV and radio advertising financed in large part by two battling billionaires—the governor himself on the “pro” side and hedge fund guru Ken Griffin bankrolling spots stating the “con” case.

There’s no question Illinois needs the revenue. The state’s current debt burden stands at $226 billion, amounting to $52,000 for every taxpayer in the state by the reckoning of Truth In Accounting, a nonpartisan watchdog group. Unfunded promises to the state’s public employees, of course, make up the biggest share of the gap: Of the $292 billion in retirement benefits these workers and retirees expect to receive, the state has failed to fund $144 billion in pension and $56 billion in retiree health care benefits.

The COVID-19 pandemic has only worsened the state’s fiscal condition. Truth In Accounting projects Illinois will lose $16 billion in revenue as a result of this crisis.

In normal times, it would be reasonable to argue that a progressive income tax that lessens the burden on the people who can least afford to pay is a fairer way to collect revenue for the services we all need and use throughout the state. Thirty-two other states in the union already have such a system. So does the federal government.

But these aren’t normal times, and Illinois isn’t a normal state. Voting in favor of the graduated tax requires a leap of faith—a belief that Illinois politicians can be trusted to shepherd these new resources responsibly and invest them soundly. Sadly, this state, under governors of both parties, has done nothing to earn that trust.

Under Pritzker’s plan, single filers earning more than $750,000 and joint filers with income exceeding $1 million would pay 7.99 percent on all their income. Marginal rates begin rising to 7.75 percent and higher for single and joint filers with incomes above $250,000. They would tick down slightly for taxpayers who earn $100,000 or less.

The new taxing system sketched out in Pritzker’s proposal would generate $3.6 billion in new annual revenue for the state. But Pritzker would dedicate less than 10 percent of that windfall to reducing pension debt—meaning the financial sinkhole that threatens to swallow the entire state will only widen, even with the infusion of new cash. Pritzker’s plan also ignores the reality that raising taxes during a recession—particularly one as intense and painful as the COVID-induced one we’re now enduring—puts more downward pressure on the economy.

Another worry—just one of a laundry list of worries laid out by Crain’s columnist Joe Cahill on Sept. 3—is the additional taxing power Illinois officials would get from the amendment. “Although middle-class taxpayers wouldn’t see their taxes rise under the initial graduated rate structure, lawmakers could hike rates at any time in the future,” Cahill writes. “Currently, the law targets a small subset of ultra-rich taxpayers for three-quarters of the additional revenue. If that highly mobile group vamooses, middle-class tax rates may rise.”

As this page has argued before, we would have been more inclined to back the idea of a graduated income tax if the governor had been willing to use the referendum as an opportunity to revisit the pension clause of the constitution. But given his alliance with public employee unions, it shouldn’t surprise us that this notion was a no-go. Unfortunately, Pritzker’s resistance to the pension clause idea makes it difficult to view the graduated-tax push as a good-faith effort to fix what’s broken in Illinois. A “no” vote will force the sort of tough decisions that have been put off in this state for far too long. It won’t be pretty. But it’s a reckoning that’s long overdue.

Vote “no,” Illinois.