Progressive income tax? Let voters have their say

Illinois’s budget problems keep going from bad to worse, and the politicians don’t seem to be capable of dealing with it. Maybe it’s time to let voters have a direct say in the matter.

A statewide association is pushing for just that. A Better Illinois, a coalition of 60 organizations, is pressing for a ballot initiative that would amend the state’s constitution to allow for a progressive income tax.

The group cites polls showing “overwhelming support” for an income tax with higher rates for wealthy residents, with positive responses ranging from 65 percent to 77 percent.

Wary Democratic leaders have yet to get on board. And right-wing groups heavily funded by outside interests are strenuously opposing any effort to let the voters have a say.

Something has to be done. Pension benefit cuts enacted last year were hailed by the powers-that-be as the solution to the state’s fiscal crisis. In reality, if they aren’t struck down in court, they will only ding the deficit, saving just $1.5 billion a year.

Illinois’s general fund deficit for fiscal year 2014 was $8 billion — and that’s with about $8 billion brought in by a temporary tax increase, which is set to expire in January. The state has a $6 billion backlog of unpaid bills. And budget projections show massive revenue losses looming, requiring huge cuts in education, public safety, and human services.

We can’t cut our way out of this. State spending on core services has declined steadily for fifteen years, and the deficit has only grown. Today, Illinois has the 17th highest per-capita income among states, yet it ranks 40th in per-capita spending on education.

The problem is the state’s regressive tax system, rooted in the Illinois Constitution’s prohibition of a progressive income tax, said Kirsten Crowell, executive director of A Better Illinois.

Because it imports the federal tax code’s loopholes, even the flat income tax turns out to be regressive, resulting in middle-income households paying a higher overall rate than those at the top. Looking at all state and local taxes, the lowest-income residents pay twice as much of their income in taxes as the highest-income residents (Fig. 1), according to the Center for Tax and Budget Accountability.

With income growth since 1980 almost entirely in the top tier, we’re taxing most heavily the people who are falling behind fastest — and that “necessarily means revenue collection will not keep pace with the economy,” according to CTBA.

“How do we get our state out of this mess, and do it on a long-term basis?” Crowell asks. “The State of Illinois should be able to tax millionaires at a higher rate than minimum wage workers. That’s how 34 states do it. It’s the modern way to collect revenue.”

A “fair tax” would mean a tax cut for the vast majority of residents, she said. “It’s not only fairer, it also puts money back into the local economy.”

Groups like the local branch of Americans for Prosperity, a national organization heavily funded by the Koch brothers, is vociferously opposing the ballot initiative. Crowell accuses them of dishonesty in claiming that a progressive tax would mean a hike for 85 percent of the state’s taxpayers.

AFP’s claim is hard to evaluate, since the ballot measure doesn’t dictate rates. The General Assembly would set rates — if it enacted a progressive tax — after the amendment passed.

But it’s certainly possible to design a rate structure that is in line with other states, raises as much or more as the current system and gives most people a cut. A couple years ago CTBA ran numbers to show how rate structures in other states would play out here. If Illinois took Iowa’s tax structure, for instance, it would raise an additional $6.3 billion a year (Fig. 6), and 54 percent of taxpayers would get a reduction, averaging almost 25 percent. A Better Illinois is calling for a rate structure that raises at least as much as the current system, Crowell said.

“We think it should be left to Illinois voters to decide, not the Koch brothers,” she said.

The legislature has a deadline of May 4 to pass a resolution putting the measure on the ballot.

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