By Andrew Adams
Illinois voters will have the chance to make fundamental changes to the State’s tax code this November.
The Nov. 3 ballot will include a proposed amendment to the Illinois Constitution to allow for a graduated State income tax, commonly called the Illinois Fair Tax.
This vote on the Illinois Fair Tax amendment and its associated new tax structure comes after more than a decade of debate surrounding the issue. Representative Naomi Jakobsson, a Democrat from Urbana, formally proposed it in 2013, but the House Revenue Committee of the Illinois General Assembly rejected it. In May 2019, both the Illinois House and Senate passed a constitutional amendment, pending approval from Illinois voters, alongside a bill laying out the new tax structure.
The reform would implement a tax bracket system, similar in structure to that of 32 other states and the Federal government. According to the bill passed by the House and Senate, the tax proposal has six brackets: 4.75% on taxable income from $1 to $10,000, 4.9% on income from $10,001 to $100,000; 4.95% on income from $100,001 to $250,000, 7.75% on income from $250,001 to $500,000, 7.85% on income from $500,001 to $1 million, and 7.99% on income exceeding $1,000,000.
Jake Lewis, a spokesman for the nonpartisan Vote Yes for Fair Tax coalition, said the coronavirus (COVID-19) pandemic makes this new tax structure more important than ever. Vote Yes for Fair Tax, which consists of more than 40 labor organizations, unions, and grassroots advocacy groups, includes the American Federation of State, County, and Municipal Employees Council 31; Illinois American Federation of Labor and Congress of Industrial Organizations; People’s Lobby; ONE Northside; and Shriver Center on Poverty Law.
In advocating for the Fair Tax amendment, Lewis cited disparity between taxes paid by the richest Illinois residents and the poorest and characterized the current tax structure as “regressive” because poorer citizens pay a higher percentage of their income in taxes than richer citizens.
‘Pandemic makes it clear’
The ongoing coronavirus situation provides another reason to support the amendment, Lewis said, noting, “I think the pandemic makes it clear that, now more than ever, workers need relief.”
Amendment supporters include prominent Democratic leaders in State government such as Governor JB Pritzker, Speaker of the Illinois House of Representatives Michael Madigan, and President of the Illinois Senate Don Harmon.
Pritzker ran his gubernatorial campaign in part on his promise to implement a graduated income tax.
Amendment opponents include the conservative think tank Tax Foundation. Jared Walczak, the group’s director of State tax policy, published a report criticizing several components of the broad tax reforms that Democrats favor.
Proposed reforms do not include “inflation indexing,” Walczak said. He believes that omission could increase “the taxpayer’s liability as a greater share of their income is taxed even if that income has not increased in real terms, since bracket kick-in thresholds are fixed,” according to the report. In other words, without including an adjustment for inflation over time, as the amount of money taxpayers make increases with inflation, the State may tax them at a higher rate even if their income’s purchasing power has not increased.
Walczak also oversees his organization’s State Business Tax Climate Index, which measures a state’s tax code’s friendliness to business operations. If Illinois implements the Fair Tax plan fully, Walczak projects Illinois would drop in the state rankings from 36th to 48th, or near the bottom in terms of business friendliness. Walczak believes this potential drop represents a significant risk to Illinois’s economy and that the ranking measures “something real and economically meaningful—the competitiveness, or lack thereof, of the State’s overall tax structure.”
Alternate conservative plan lowers pensions
In February, the libertarian/conservative think tank Illinois Policy published an alternate scheme to balance the Illinois budget, addressing some of the “failures” they see in the Fair Tax plan. Illinois Policy’s Illinois Forward plan includes provisions to lower “future, not-yet-earned” pensions to what the organization claims is a more sustainable level, adjusting which agencies have responsibility for paying future pensions, and reducing administrative staff in K-12 schools. The proposal claims these three policy shifts could save the State $21.2 billion.
All three of the most well funded ballot committees currently active in Illinois support the amendment, with more than $5 million in funds currently available, according to campaign disclosures. These are Vote Yes for Fairness (which is associated with Pritzker’s campaign for the governorship), Vote Yes for Fair Tax (a coalition of labor organizations), and Vote Yes to a Financially Responsible Illinois (which is associated with the American Association of Retired Persons).
Polls show support
Most people in Illinois support a graduated income tax, according to polling. The Paul Simon Public Policy Institute at Southern Illinois University reported in March 2019 that 67% support the new tax structure. In September 2019, the University of Illinois Springfield Survey Research Office also reported 67% support. Lewis, spokesman for Vote Yes for Fair Tax, said he is confident of support from the people of Illinois.
Proponents estimate 97% of Illinois taxpayers will see their annual income tax go down under the new Fair Tax.
Another organization, Vote Yes for Fairness, elaborated in a statement: “Illinois’ current tax system is fundamentally unfair, disproportionately burdening our middle- and lower-income families while creating income inequality in our State. Under the current system, which taxes everyone at the same rate regardless of income, the top 1% of Illinoisans only have to pay approximately 7% of their income in State and local taxes. In contrast, middle and lower income families are forced to pay nearly double—around 13% of their income in State and local taxes. The Fair Tax will help lift the burden off our working families, while finally forcing the wealthiest residents to pay their share.”
To see how the amendment could affect you, the Office of the Governor has released an online tool that estimates your income tax under the new system. It is available at https://www2.illinois.gov/sites/gov/fairtax.
To reach Vote Yes for Fair Tax, log on to www.yesforfairtax.org/ or email firstname.lastname@example.org. For Vote Yes for Fairness, log on to voteyesforfairness.com. For the Tax Foundation, visit https://taxfoundation.org/ or call (202) 464-6200. For Illinois Policy, visit www.illinoispolicy.org/ or call (312) 346-5700.