Abraham Lincoln Taxed the Rich. This Election Day, Illinois Can, Too.
The first US income tax was instituted at a time of crisis. In the summer of 1861, with the Civil War raging, Union forces were hemorrhaging revenue as credit dried up, with some banks threatening to stop doing business with the federal government altogether. At the time, Confederate forces from the South were making gains while Northern armies ran out of supplies, dulling the North’s advantage in wealth and industry.
The Union was in the midst of a financial emergency that threatened to derail the abolition of slavery. To generate the resources needed to destroy the Confederacy, and to establish independence from banks interested only in profit-making, the government turned to a new way to fund itself: placing a tax on the money Americans made. That new taxation system included another novelty: forcing the rich to pay more.
The Revenue Act of 1861, signed by President Abraham Lincoln in August of that year, levied a 3 percent tax on all incomes over $800 — a threshold that, at the time, affected only the richest 3 percent of all Americans. The following year, Lincoln and Congress passed a subsequent income tax bill that included a graduated rate. Prior to these laws, the government had collected revenue primarily through tariffs on goods which essentially served as a flat tax, impacting all Americans the same regardless of their income level. Now, the United States had established the first progressive income tax in its history.
As historian Steven R. Weisman writes in The Great Tax Wars: Lincoln to Wilson — The Fierce Battles over Money and Power That Transformed the Nation, these taxes “established what until then was considered a revolutionary principle: the idea of taxing rich people at a higher rate compared to the rate for people less well off. Yet once established, that principle became a permanent feature of the American political and economic landscape.”
It worked, even if the rich weren’t happy about it. The war persisted until the spring of 1865, but the income tax secured enough resources to ensure the North’s ultimate victory and the destruction of the scourge of slavery in the United States. While the federal income tax wasn’t officially adopted in the US Constitution until ratification of the Sixteenth Amendment in 1913, Lincoln’s gambit paved the way for fulfilling the “revolutionary principle” of soaking the wealthy to benefit the collective good.
Today, with the country again plunged in crisis, voters in Lincoln’s native state of Illinois have an opportunity through a ballot initiative in the November election to embrace the Great Emancipator’s vision and finally adopt a progressive income tax to replace the state’s flat tax — the plutocrat’s dream taxation system that currently impinges upon all residents equally, no matter their ability to pay.
50 Years in the Making
Illinois is currently one of only nine states in the nation that imposes a flat tax on its residents, taxing all personal income at a rate of 4.95 percent across the board. That means that a millionaire hedge fund manager and a low-wage caregiver currently kick in the same rate of state taxes on their pay.
As a result, Illinois’s current tax structure is regressive, hitting working-class residents harder than those in higher income brackets. It also makes Illinois unique: thirty-four of the fifty states already have a progressive income tax on the books, including New York and California, which are similarly home to high proportions of the obscenely wealthy.
Illinois now boasts one of the most unfair tax systems in the country. According to a new report from the Institute on Taxation and Economic Policy, the state’s flat tax “amounts to a tax subsidy for the wealthiest Illinoisans that compounds income inequality and racial wealth gaps.”
But Illinois is a firmly “blue” state where Democrats currently control both the statehouse and the governor’s mansion. Over the past year, Gov. J.B. Pritzker — despite being a billionaire himself — has signed into law a slew of progressive legislation, from expanding reproductive rights to legalizing marijuana and increasing the minimum wage. But the flat tax remains on the books, though it’s not for lack of trying to eliminate it.
The state’s Constitution, adopted in 1970, established Illinois’s first-ever income tax while also forbidding the legislature from instituting a graduated system. The flat-tax proposal was backed by both Republican Gov. Richard Ogilvie and Democratic mayor of Chicago Richard J. Daley, along with other Democrats who backed the new Constitution. In Politics of the Purse: Revenue and Finance in the Sixth Illinois Constitutional Convention, Joyce Fishbane and Glenn Fisher explain that, “To allow a graduated rate would have been a move away from the status quo — a move the delegates [at the 1970 constitutional convention] were not willing to make.”
As a result, the state has been stuck with a constitutionally mandated regressive tax structure for half a century, limiting the policy options of lawmakers and stymieing efforts to raise revenue for public projects and services.
That could now change. In the recent legislative session, the Democratic-controlled Illinois General Assembly backed a “Fair Tax” amendment to move to a graduated income tax structure, placing the question of whether to remove the state Constitution’s flat tax mandate on the November ballot, where it will require the support of either 60 percent of those who vote on the issue or a majority of total votes cast.
If it passes, this amendment would allow lawmakers to launch a progressive tax system — a plan they already have passed and ready to go. Under the bill approved by the General Assembly, any income under $100,000 would actually be taxed at lower rates than the current standard 4.95 percent, meaning that 97 percent of Illinois residents would actually pay less in income taxes than they do today.
For those with income levels rising above $250,000, tax rates would gradually rise in tandem, ultimately reaching 7.99 percent for those who make $750,000, or joint filers that bring in over $1 million per year (also known as “rich people”). Under the plan, the corporate tax rate would also increase from 7 percent to 7.99 percent.
In all, the new system is projected to bring $3.57 billion in additional revenue to the state. And just like Lincoln’s archetypal 1861 income tax, the higher rates would similarly only apply to the richest 3 percent of all households.
State of Inequality
Illinois is a state riven by inequality. The top 1 percent of households bring in sixty-five times as much annual income as the average household in the other 99 percent. And because of the flat tax, lower-income families pay a far greater share of their pay than the rich, meaning working-class people have less take-home money to spend on basics like housing, health care, food, and education. It also means they’re spending less in their local economies, driving down the consumer spending that accounts for nearly 70 percent of all economic activity.
While rich people are more likely to sit on their money, working people spend a much higher proportion of theirs. The recent round of $1,200 stimulus checks sent out by the government in March actually led to a bump in both earnings and consumer spending for the lowest-paid workers. As Amanda Fischer, policy director at the Washington Center for Equitable Growth, has said of the payments: “You give lower income people money and they’re spending all of it, which is the biggest economic boost.”
Since the rich are hoarding their wealth, taxing them at a higher rate and working people at a lower one would help stimulate the economy while raising much-needed public dollars for a state mired in a deep financial crisis.
The COVID-19 pandemic, which has now claimed over two hundred thousand lives in the United States, is also wreaking economic havoc, both for individuals and on municipal budgets. Rates of unemployment, hunger, and financial distress are soaring across the country, most acutely for working-class women and communities of color.
In Illinois, Gov. Pritzker says the shutdown has already led to at least $1 billion in lost revenue this year and will likely cost the state upwards of $5 billion next year. As a result, he’s floated a 5 percent cut in state services — austerity that’s set to slash health care, education, social services, and public safety for working people. And Lt Gov. Juliana Stratton has said that the state might enact a 20 percent across-the-board income tax hike if the progressive tax measure fails.
According to Ralph Martire of the Center for Tax and Budget Accountability, due to the pandemic, the state is facing a nearly 50 percent revenue shortfall in 2021 “if they just wanted to provide the same level of services next year they do this year.” That’s a massive gap that could lead to devastating cuts to programs that Illinois residents rely on, as well as mass layoffs of state workers.
With Trump and Congressional Republicans refusing to entertain Democratic proposals to provide financial relief to cities and states facing financial hardship, the options are either more cuts or increased revenue. Illinois’s flat tax currently prohibits the latter. By moving to a progressive system, the state could actually start to solve its fiscal quandaries without harming the vast majority of its residents — by taxing the rich.
Addressing a cataclysmic event like the COVID-19 crisis will require a new approach to public policy. US billionaires have increased their wealth by $800 billion — nearly 30 percent — since the pandemic began, buoyed by President Trump’s 2017 tax law that lavished benefits on the wealthy.
A New York Times exposé revealed that Trump himself paid zero in federal income taxes in eleven of eighteen years the newspaper looked into, while his companies have profited enormously off of his presidency. Meanwhile, according to the Census Bureau’s Household Pulse Survey, nearly 23 million adults “live in households in which there wasn’t enough to eat at some point in the past seven days.”
Battle of the Billionaires
The good news is that taxing the rich is popular — and increasingly so. A Reuters/Ipsos poll this year found that the share of Americans who agree that “the very rich should contribute an extra share of their total wealth each year to support public programs” stands at 64 percent, a level that’s been increasing since the 1990s.
Similarly, an April poll showed that Illinois voters backed the progressive income tax proposal by a two-to-one margin. This level of support would seem to spell certain victory for proponents of the Fair Tax. But, as per usual, the rich are working overtime to tip the democratic scales in order to protect their wealth and power.
In September, Ken Griffin, CEO of hedge fund Citadel and the richest man in Illinois, gave $20 million to a business group that seeks to defeat the Fair Tax proposal. Griffin, net worth $15 billion, has skin in the game. As a recent Chicago Sun-Times editorial points out, “avoiding a three percentage point increase in income taxes is an excellent return on a $20 million investment.”
A constellation of pro-corporate groups and individuals are joining with Griffin to defeat the proposal, including infamous real estate investor and failed media mogul Sam Zell, chambers of commerce throughout the state, and the right-wing Americans for Prosperity Action. These forces are funneling gobs of money into an effort to deceive Illinois voters into believing they’ll be on the hook for any tax increases brought about by the new system — despite the fact that it’s the wealthy few who would pay more.
Such interference has helped sink previous efforts to tax the rich. Last year, a ballot measure in Colorado to “keep and spend” all the state’s tax revenue was voted down following a massive opposition effort by business groups — groups that are now offering guidance to Fair Tax opponents in Illinois. And in California, where residents are preparing to vote on Proposition 15 which would increase taxes on commercial and industrial properties to help fund local governments and education, the pro-business lobby is pulling out all the stops to fight the measure.
But what sets the fight in Illinois apart is that the big money isn’t only coming from the right. Gov. Pritzker, heir to the Hyatt hotel fortune, has donated over $56 million to see the Fair Tax enacted, eclipsing the contribution of Griffin in a rich-guy-spending arms race. And labor unions in the state including the Service Employees International Union (SEIU), American Federation of State, County and Municipal Employees (AFSCME), and the Illinois AFL-CIO have also thrown their support behind the measure.
They realize that the only way to remove the boot from the necks of workers is to end a tax system that ensures inequality and empowers the super rich — who also tend to be the very bosses unions are organizing against.
It’s not just Illinois. In 2018, for the first time in history, US billionaires paid a lower tax rate than the working class — a trend that’s only continued since. A new study from the Rand Corporation and the Fair Work Center shows that, due to inequality, working people have been robbed of a full $2.5 trillion over the past five decades.
Recouping those losses for the public good will require reversing this dynamic by vastly increasing tax rates on the moneyed class.
Do It for Abe
The branding of the measure as a “Fair Tax” is smart. After all, our economy, in Illinois and across the country, is marked by profound unfairness, and any attempt to bring more balance to the system is a positive step that voters from all walks of life can get behind.
A functioning society depends on a strong public sector, where everything from highways, logistics, education, and transportation to research and development for medical care and technology are adequately provided for. Private companies are only able to amass profits because of the support structures created through the public sphere. Just try imagining a tech entrepreneur getting rich off of an internet company without tapping into the US government-financed power grid (or the government-financed internet itself, for that matter).
In other words, all wealth is socially created. As such, that wealth should be taxed in a way that benefits the whole of society.
Abraham Lincoln understood this, as he laid out in his First Annual Message on December 3, 1861, just months after instituting the first US income tax: “Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration.”
Lincoln was no socialist, but his approach to governance was animated by this “revolutionary principle”: that working people generate society’s riches, and deserve to partake of the spoils they themselves created. On November 3, Illinois voters will be able to affirm this principle — to tax the hell out of the rich.
Miles Kampf-Lassin is the web editor of In These Times.
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