Illinois Flat Tax Heads to the Ballot: Two Articles
The Fair Tax Amendment: Why the ‘Illinois Exodus’ Could Be a Red Herring
The Chicago Reporter
September 16, 2020
The arguments against the Fair Tax Amendment on the ballot in November — when voters will decide whether to amend the state constitution to allow a progressive income tax — often hinge on distortions of reality.
One common distortion is Illinois residents are fleeing the state due to high taxes, and a graduated income tax that has higher rates for higher-income taxpayers would accelerate that so-called exodus. It was employed yet again last week — this time by the state’s wealthiest man.
Announcing that he was donating $20 million to the campaign against the Fair Tax Amendment, billionaire Ken Griffin said, “People aren’t waiting until November to vote against the economic hardship created by Springfield’s spending addiction — they’ve been voting with their feet for the past decade as Illinois has lost more residents than any other state in the nation.”
Let’s look at that argument step by step. It’s true that the state’s population is declining. But it’s not true that the reason for that is a high rate of residents moving out of state.
In fact, the number of people moving out of Illinois is below the national average for state outmigration, according to a 2017 analysis by the Center for Tax and Budget Accountability. The state’s population is decreasing not because people are being driven out, but because birth rates are low and immigration numbers have declined. Since the CTBA’s study, outmigration numbers in Illinois have continued to decrease.
Even the Chicago Tribune, which continually flogs the supposed “Illinois Exodus” in its editorials against the Fair Tax, has reported U.S. Census Bureau figures showing that Illinois is “near the middle of the pack” among states for domestic outmigration.
As for the folks who are leaving Illinois, according to the Tribune’s own reporting, the state’s fiscal challenges — which result from the state’s flat income tax, many experts say — are cited by relatively few people as their reason. A U.S. Census Bureau survey shows that the most common reason for moving, given by nearly one-third of people moving out of state, is a job transfer or new job offer. The second and third most common reasons are to be closer to family and “other housing reason,” including lower housing costs.
Income tax rates are clearly not a major reason for people leaving the state. For white Illinoisans, the top destinations include St. Louis, in a state where most income is taxed at a higher rate than in Illinois, and Minneapolis, where income tax rates are higher and steeply graduated. (The Federation of Tax Administrators has a handy chart of state income tax rates.) For Black Illinoisans, the top destinations include Atlanta, where most income is taxed at a higher rate than in Illinois; Wisconsin, where most income is taxed at a higher rate, and rates rise steeply for higher income levels; and Indiana.
Indiana is a special case. In addition to a low, flat state income tax, many Indiana counties also levy income taxes. A large proportion of Chicago-area residents have moved to Lake County, Indiana, where the county income tax added on the state tax brings rates very close to Illinois’ level. What Lake County and many other places have are lower property tax rates. Illinois has the second highest property tax burden in the nation because of its failure to fund schools adequately at the state level — a result of the regressive tax structure created by the flat tax, which fails to capture revenue where incomes are growing, at the top of the ladder.
And contrary to the claims of Fair Tax opponents, tax rates and fiscal challenges in Illinois do not seem to be driving away high income earners. The CTBA has found that those Illinoisans earning more than $100,000 per year who move out of state (only some of whom would be affected by Fair Tax rate changes) are in fact most likely to move to East and West Coast cities where income tax rates are much higher than they are here.
Meanwhile, Chicago attracted more new residents earning $100,000 or more than any city besides New York between 2010 and 2016. And Chicago attracted more people earning more than $200,000 per year than any city in the country. So much for people “voting with their feet.”
So when Griffin writes that his hedge fund is finding it “harder and harder to convince people to move here” the problem isn’t the state. It might be the employer.
In any case, it’s clear that the Illinois Exodus is simply a red herring — one among many.
The state’s fiscal challenges are not due to overspending on services. In real dollars, Illinois spending on health care and other services dropped sharply over recent decades. It’s not due to excessive pension benefits for state employees, either. More than half of the $100 billion increase in the state’s pension debt over the past two decades was a result of borrowing from pension funds to cover revenue shortfalls in the state budget, according to the CTBA. Pension benefits contributed less than 6% of that increase.
Service cuts and pension problems result directly from the inability to raise sufficient revenue due to the state’s failure to tax the highest income earners — like billionaire Ken Griffin — at appropriate levels. The Fair Tax Amendment would help fix that by bringing Illinois’ tax system into line with the majority of other states — not to mention the federal government. Let’s hope voters aren’t distracted by scare tactics based on blatant distortions of reality.
Curtis Black is an opinion writer for The Chicago Reporter.
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Flat tax: 'Subsidy for Wealthiest Illinoisans'
September 17, 2020
A new study provides a scathing analysis of the state’s current flat income tax, charging it “amounts to a tax subsidy for the wealthiest Illinoisans that compounds income inequality and racial wealth gaps.”
“Taxes are about more than taxes,” said Lisa Christensen Gee, who wrote the study for the Institute on Taxation and Economic Policy, a national nonprofit, nonpartisan think tank that works on state and federal tax policy. “In choosing more regressive tax systems, more of the load or responsibility of the tax falls on moderate- and lower-income taxpayers, which effectively subsidizes the taxes the wealthiest pay under a progressive tax system.”
Currently, Illinois has a flat tax rate of 4.95 percent, the same paid by everyone on their income taxes. Opponents of what Gov. Pritzker has called the “fair tax” — raising the tax rate on just those making more than $250,000 a year — have asked what could be more fair than everyone paying the same percentage of income. Yet as Pritzker has pointed out — and the study backs it up — basic sustenance costs the same for everyone, but as income rises that gives the wealthy a larger share of discretionary income. That’s especially true with the proliferation of local taxes — not just property taxes, but even more regressive taxes and fees on utilities, cellphones, streaming services, and countless other items.
The study, titled “Illinois’s Flat Tax Exacerbates Income Inequality and Racial Wealth Gaps,” was released Thursday. It states up front: “Tax laws that collect higher shares of taxpayer income from those with lower incomes exacerbate income inequality. In Illinois today, after state and local taxes, a family making less than $21,800 has 85.3 percent of their income remaining post-taxes while a family with more than $537,400 has 92.6 percent of theirs. Tax laws that perpetuate these inequities year after year make it even harder for families already struggling to get by with low, stagnating wages.”
“One of the benefits of having a more progressive tax system in place,” Gee said, “is it can help ease up on some of the more regressive taxes, like sales taxes and property taxes. That helps with the rebalancing of the tax equity and impact, especially on lower-income and moderate-income taxpayers.”
The study basically makes its points by looking backward, comparing what the Illinois tax system would have looked like over the past 20 years by comparing the flat tax with the rates set by the General Assembly last year in passing the fair tax: rates drop to 4.75 percent for those making up to $10,000, drop slightly to 4.9 percent for those making up to $100,000, and remain the same 4.95 percent for those making up to $250,000. After that, the tax brackets are set at 7.75 percent up to $500,000, 7.85 percent up to $1 million, and the top rate of 7.99 percent for those making more than $1 million a year.
The Pritzker administration has insisted taxes would remain the same or lower for 97 percent of Illinoisans. The study adds that even those paying the same rate would see their taxes drop as a share of their overall income.
“The choice between maintaining the flat-tax status quo or adopting the fair tax extends beyond questions of individual income tax liability and improved tax equity,” the study states. “It also affects income inequality and racial wealth gaps.”
Gee points to the current nationwide concentration on racial inequities and the “greater collective consciousness about the way racial injustice plays out.”
The study confirms that in no uncertain terms, projecting that “Black and Hispanic Illinois taxpayers with taxable incomes less than $250,000 pay $4 billion more in taxes over the 20-year period studied under a flat tax than they would under the fair tax. These tax differences reduced the standard of living for these families and exacerbated income and wealth gaps, while enabling the wealthiest Illinoisans to accumulate an additional $7.5 billion in wealth due to these tax subsidies.”
“When we look at current-day poverty in communities of color, we must understand the role of our tax policies in creating that reality,” said Amisha Patel, executive director of Grassroots Collaborative and Grassroots Illinois Action, in response to the study. “Because of the flat state income tax, Black and Latinx workers have effectively subsidized the wealth of rich white residents. We have the power to end this gross inequity by voting Yes for Fair Tax this election, ensuring that our communities have greater access to quality schools, social services, and more.”
And what did the wealthy do with their additional disposable income? In many cases they reinvested it, and those earnings only increase income inequality.
Gee blames the prevailing neoliberal tax policy to “incentivize capital investment and job creation and this notion that a rising tide will float all boats, and the fact of the matter is that does not pan out and it’s just not true.” Since the tax cuts passed under the Reagan administration — culminating in the $1 trillion tax cut delivered to the very rich by President Trump and congressional Republicans at the end of 2017 — income inequality has only gotten worse across the nation. “In picking and choosing what components of classic economic theory are adhered to, there is a lot of self-serving interests that happen,” Gee added. “It’s also not true to the core stories we tell about who we are and how our economy operates — being the land of broad opportunity where anybody can make it.”
Citadel’s Kenneth Griffin contributed $20 million to an organization fighting the Fair Tax Amendment — perhaps because under the proposed progressive income tax he would have paid $26 million more in taxes in 2018. (Wikimedia Commons/Paul Elledge)
Exhibit A would be Kenneth Griffin, the billionaire head of the Citadel hedge fund who recently contributed $20 million to a group committed to fight passage of the Fair Tax Amendment. Former state Sen. Daniel Biss was quick to point out that, under the progressive income tax proposed by Pritzker, he would have paid $26 million more in taxes in 2018. Gee laughed at that, saying, “Up to that point he has the economic incentive to do so, to try to stop it.”
She said, “It’s not surprising. A lot of that is around who are the individuals with interests and what do they stand to lose? … As humans, we’re loss-averse — the feeling of things being taken from us. This is actually something in the long term that will make us all better off, even if there’s some short-term pain to those who benefit more at the moment.”
Because a graduated income tax has to amend the state constitution, which currently calls for a flat tax, Illinois voters have to approve it by a supermajority of 60 percent. “It’s not uncommon,” Gee said. “Tax issues on the ballot are always a challenge.” Polls have shown overwhelming support for a progressive income tax, but of course subject to a lot of muddying of the waters and misinformation from anti-tax groups like the one Griffin contributed to.
“Illiniosans have an opportunity, in one realm of the universe, to say we can do something that will allow us to build a more a more equitable society,” Gee said. The irony, the study points out, is that even under the fair tax Illinois would only go from being the eighth-most-regressive state in its tax system to the 20th-most-regressive state.
Legislators wanted to keep the top tax rate under those of other Midwestern states with graduated income taxes, like Iowa and Minnesota, but Gee said that could easily be raised — and appropriately so. The added $3 billion in revenue to be produced by the graduated income tax could also fund other reforms, she added, such as expanding the Earned Income Tax Credit both in its tax refunds and its reach of eligibility.
“The data in this report prove what many families of color and low-income Illinois families have felt for years — Illinois’s tax system was built to benefit the rich at the expense of everyone else,”said Harish Patel, Director of Economic Security for Illinois. “If we in Illinois intend to close the racial wealth gap and give all our neighbors a fair shot, we must start by creating a fairer tax system.”
“This is a good first step, but there’s a lot more the state can do,” Gee said. “This is a good first step in a better direction.”
Ted Cox is editor of One Illinois, a statewide online news outlet. His compilation of sports columns, "1,001 Days in the Bleachers," is available via NU Press.
One Illinois is a nonprofit statewide internet-only news outlet. We cover all things of interest to Illinoisans, as well as policy on major issues such as education, infrastructure, income inequality, employment, and the environment. These have increasingly become wedge issues in a political narrative meant to divide the electorate. Yet we maintain that, while it may feel partisan to talk about these matters, they are elements of everyday life we all have to confront. Thus, we reject the attitude that they're issues of left or right; rather, we believe the solutions lie in ourselves if only we work together and recognize that we rise and fall as one people and one state. Journalism is our instrument to reconnect people around issues we all experience, and we intend to use it to bridge those false divides. As a particular kind of nonprofit, we are not permitted to engage in electioneering or otherwise back candidates, but we can deal in facts and common sense. We believe in truth and in using journalism to find a common thread in the pursuit of a better Illinois.