Illinois Inches Closer to a Graduated Income Tax

The passage of a state constitutional amendment that would allow a graduated income tax is Gov. J.B. Pritzker’s number one priority.

Pritzker says allowing the state to tax richer people at a higher rate is the only way to return financial stability to Illinois. And on Wednesday, Senate Democrats in Springfield approved a constitutional amendment that would allow Pritzker’s proposed new tax system to take effect – subject to voter approval in 2020.

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One person backing Pritzker’s plan is his former gubernatorial election opponent, Daniel Biss. The former state senator who is now executive director of Rust Belt Rising, which trains Democratic candidates across the Midwest, says the key question is simply whether or not we have a tax system that works for all Illinoisans.

“The question here is, ‘Do we have the right tax system in Illinois?’ because this is an effort to reform our tax system,” Biss said. “The answer to that question is no. And the reason you can tell is that it is harder to be middle class in Illinois than almost any other state, but easier to be a millionaire or a billionaire.”

Because Illinois has a constitutionally mandated flat tax system it is currently impossible for legislators to raise taxes on richer Illinoisans.

“We’ve got a system that virtually forces the legislature to raise taxes on the middle class,” said Biss. “The system we have now says that we are going to make Illinois a really great place to be a millionaire. We are going to lock into the constitution a rule that makes it impossible to ask rich people to pay more and therefore keep on squeezing the middle class. I understand why rich people like that, but it’s a bad system and most other states, including most conservative states, would agree that it is a bad system.”

Opponents of Pritzker’s plan say it would drive businesses out while failing to restore the state’s fiscal health – and ultimately lead to higher taxes for all.

Adam Schuster is budget and tax research director at the Illinois Policy Institute, which has argued against Pritzker’s plan. He contends that a graduated income tax would make the state’s finances more volatile because higher earners get a larger share of their income from capital gains and other forms of investment, which vary with the economic cycle.

Schuster also argues that a constitutional amendment to allow for a graduated income tax would not lead the state to fiscal health because it would lead businesses and higher earners to flee the state.

“The only way to balance our budget in the long run in a sustainable way is to reform structurally how we are spending on pensions and government worker health insurance,” Schuster said.

But Schuster does favor a constitutional amendment that would reduce the future growth of the state’s pension liabilities. At present, the constitution prevents any reform to the state’s pension system for government workers that would diminish benefits.

“We’ve put forward a plan that would not cut a dime from the pension check that anybody is already receiving or reduce the pension promises at all,” Schuster said.

He says Illinois should follow the lead of Arizona, which amended its constitution twice to reduce its pension liabilities.

“They had a virtually identical situation where they tried to reform pensions and then were blocked by their state’s supreme court due to a pension clause,” said Schuster. “They have shown Illinois the path forward to sustainable government finances that protects pensions for government workers by making sure the pension systems are solvent but also prevents pensions from taking up an unreasonable share of the budget pie in a way that is unsustainable and unaffordable for taxpayers."

But according to Biss, the key thing is to give the legislature the ability to tailor the tax system to the needs of the moment.

“When we talk about the realities of modern economic life, which is that over time things change, things evolve and it’s important for the economic system to keep up with changing times,” said Biss. “Maybe in 20 years the income gap will shrink and it will be time to cut taxes on the very rich. Maybe in 20 years the income gap will grow more and it will be time to raise taxes on the very rich. But what I know for sure is that having a constitution that doesn’t let you actually adjust your tax system over time is a recipe for disaster.”

Related stories:

Pritzker: ‘No Concerns’ About Investigation of Property Tax Appeal

Stage is Set for Major Fight Over Illinois Constitution, Tax Policy

Millionaires Would Pay 3 Percent More Under Pritzker Tax Plan

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