Path Not Easy for Pritzker’s Tax-the-Rich Plan
Democrats who soon will retake full control of Illinois government are expected to push for a sweeping overhaul of the state income tax, but if history is any guide prospects for success range from don’t-get-your-hopes-up to fat chance.
Replacing the current single tax rate structure in Illinois with a menu of graduated rates that charge more to the wealthy would require a Constitutional amendment that to pass requires an extraordinary majority of voters. Similar proposals in other states have fared poorly at the ballot box.
In November, voters in Colorado defeated a referendum that would have replaced that state’s Illinois-like flat tax with several new brackets for higher income wage earners while dedicating an expected $1.6 billion revenue windfall for public schools. The measure was rejected 55 percent to 45 percent.
“It’s always been tough. Voters always approach these with skepticism,” said Kim Rueben, of the Urban-Brookings Tax Policy Center at the Urban Institute.
Illinois and Colorado are outliers when it comes to taxes. Just eight states impose the same rate for the wealthy, middle class and low-income alike, with Illinois’ set at 4.95 percent. A handful of states charge no income tax at all, but another 33 — as well as the federal government — have graduated tax rates that increase with income and in many cases far exceed the current single rate in Illinois.
On the campaign trail, Gov.-elect J.B. Pritzker said he hoped to place a graduated tax revamp before voters during the 2020 presidential election. He framed his advocacy as a matter of fairness that would place a greater burden on those who can best afford it to fund schools and state services.
Meanwhile, incumbent Republican Bruce Rauner attacked Pritzker’s plan as a recipe for widespread tax hikes, insisting that graduated taxes always led to higher rates on the middle class. In October, that claim was rated False by Politifact, the BGA’s Illinois fact-checker.
At the same time, however, when it comes to tax reform there is often a disconnect between what voters say they want and what they are willing to vote for.
On three separate occasions starting in the late 1960s, Michigan voters buried proposals to switch from a flat to a graduated income tax, by at least 2-to-1 margins in every case. Massachusetts voters voted five times, by similar margins, to kill a progressive income tax.
The state of Washington has no income tax, but in 2010 voters rejected by a 2-to-1 margin a proposal to impose one only on the wealthy. It lost despite sweeteners that would have used the added revenue to pay for property tax relief and an increased business tax credit.
Maine voters proved to be the political exception in 2016 when they narrowly endorsed a 3-percent income tax surcharge on income above $200,000, with the new money going to schools. At the urging of Republican Gov. Paul LePage, though, the legislature overturned the will of the voters and repealed the surcharge.
Last month, the Maine electorate crushed a ballot measure that would have established a 3.8 percent payroll tax on wage income above $128,400, which was to be used to support a universal home health care system.
None of this means a proposal to enact a progressive income tax in Illinois is impossible to pass, just difficult.
As the earlier Maine example demonstrates, knee-jerk tax opposition does not always rule the day with voters. In California last month, voters soundly defeated an attempt to repeal a politically volatile increase in the state’s gas tax the legislature approved a year earlier to fund highway and transportation projects.
In Kansas, voters also defeated the conservative bid for governor of Kris Kobach, a Tea Party acolyte who had embraced steep and controversial tax cuts of former Republican Gov. Sam Brownback that produced deep deficits and service cuts in the state.
“I think you’re seeing a move against anti-tax rhetoric that is increasingly extreme,” said Vanessa Williamson, author of the 2017 book, “Read My Lips: Why Americans Are Proud to Pay Taxes.”
But Williamson, a fellow in governance studies at Brookings, said the increasing nationalization of local political contests in the era of President Donald Trump could make it harder to draw attention to confusing details of ballot measures such as a tax referendum in Illinois.
“When you talk to people about their problem with the tax system, they first say the corporations and the wealthy don’t pay their fair share. And then second they say they don’t like a complexity of the tax code,” Williamson said. “They want things to be simple, and the flat tax is simple.”
Rates have fluctuated over the years, but the flat tax is the only income tax Illinois voters have known. (A graduated tax approved by lawmakers in the 1930s was quickly struck down by the state Supreme Court and never went into effect.)
The current flat tax structure was approved in 1969 and then enshrined in a new Constitution the following year.
Illinois’ current tax rate of 4.95 percent rate is higher than the 4.25 percent flat rate in Michigan or the 3.23 percent flat rate in Indiana, though the comparison is somewhat misleading. Indiana allows counties to impose their own income taxes while many cities in Michigan have local income taxes as well. The Illinois Constitution allows only the state to levy an income tax.
Most other states in the region have graduated income taxes, and higher brackets often exceed the rate charged in Illinois. Iowa has nine brackets ranging from 0.36 percent 8.98 percent. In Minnesota, the top tax rate is double that of Illinois at 9.85 percent. Wisconsin has four brackets, and income for a married couple above $15,280 is taxed at escalating rates far exceeding the rate now in place in Illinois.
Pritzker may have made a graduated tax plank central to his campaign, but he also caught considerable grief from Rauner and other critics for refusing to be specific about the rates he thought should be charged if voters greenlighted a constitutional amendment.
The incoming governor is hardly the first prominent Illinois politician to push for a graduated tax. In 2010, then-state comptroller Dan Hynes made the reform central to his campaign for governor in the Democratic primary. He lost to then-Gov. Pat Quinn.
Don Harmon, a high-ranking Democratic member of the state senate from Oak Park, has sponsored resolutions in past legislative sessions to put what he calls a “fair tax” graduated rate amendment before voters. Harmon claims his plan, which has never made the ballot, would reduce taxes for 94 percent of Illinois taxpayers.
“This is not a radical concept by any stretch,” Harmon said. “I think if we are honest and direct with voters it will not be hard to get the fair tax approved.”
That remains to be seen. Illinois state government has a long and unproud history of fiscal mismanagement — skipped pension payments, stiffed vendors, a near-junk bond credit rating, a recent two-year budget stalemate as well as scores of thieving politicians sent to prison, including multiple governors.
The success of any new tax question put to voters then has to be weighed against a suspicion that more revenue could simply be squandered.
“I suppose everything in Illinois is complicated by that history,” Harmon said, “but I don’t see a linear relationship here. No governor went to prison because of a flat tax or a fair tax. This is something that affects people in their pocketbooks, and I’d like to believe the voters will vote their economic interests.”
A survey conducted over the summer by the University of Illinois-Springfield and NPR Illinois found 57 percent of Illinois voters supported the concept of a graduated income tax. If that margin held through an actual vote, it would likely fall short of the percentage required to approve a graduated income tax proposal.
Passage of any amendments to the Illinois Constitution requires either support from 60 percent of those voting on the particular question or a majority of all those casting ballots in the election.
Data from the Illinois Department of Revenue show that the wealthiest taxpayers, those earning more than $500,000, submitted about 58,000 returns and paid $3.2 billion in income taxes in 2015. Those earning between $100,000 and $500,000 totaled one million returns and paid $5.4 billion in taxes — the largest segment — while middle-income taxpayers turned in 1.3 million returns and paid $2.7 billion.
Finding the balance that satisfies the goal of giving broad-scale tax relief while generating new revenue for schools, other state services and paying off past debts will be a challenge. And Rueben said, it can’t be done by simply soaking the rich.
“First they have to explain to voters that the state has been spending money it hasn’t had, and then you have to explain that the level of corruption that might be present is going to under control,” Rueben said. “Voters have to understand what they’re getting for their money.”