A taxing debate

Conservative Dan Proft goes at it over ‘fair tax’ with Ralph Martire of Center for Tax and Budget Accountability

Dan Proft (right) makes a point as Ralph Martire and the Union League Club’s Christopher Robling look on at Wednesday’s debate on the “fair tax.” (One Illinois/Ted Cox)

By Ted Cox

CHICAGO — A conservative pundit and the head of a bipartisan tax watchdog went at it at the Union League Club of Chicago Wednesday over the “fair tax” proposed by Gov. Pritzker.

Dan Proft, WIND 560-AM radio host and former Republican candidate for governor, and Ralph Martire, executive director of the Center for Tax and Budget Accountability, found little to agree on when it came to Illinois adopting a graduated income tax.

Arguing that Illinois has “never had a good tax policy,” Martire pointed to statistics showing that, since 1979, the top 1 percent of earners had seen their income more than double, growing 177 percent. By contrast, he added, the other 99 percent of earners had seen their income grow just 9 percent — and for the bottom 90 percent income was actually down adjusted for inflation.

Stating that the goals of any taxation system should be to draw from growth sectors and “assess tax policy fairly among people with very different incomes,” Martire said, “There is only one tax in the entire tool kit that can respond to this — and that’s the income tax.

“You have to raise revenue from where the economy is growing, not declining,” he added. Martire said the state’s flat tax rate was “missing where all of the growth in the economy is occurring."

Martire heartily endorsed a progressive income tax, saying, “We need this tool in the kit.”

Proft countered that high taxes amounted to the “fleecing of Illinois families” and were driving an exodus from the state, one of only two to lose population the last five years running, along with West Virginia. Calling it a Hobson’s choice in which Illinois residents can’t afford to leave and can’t afford to stay, he said, “They simply can’t make it financially feasible to stay in Illinois.”

Martire replied that, while Illinois was suffering from a net migration, with more people leaving than moving in, Wisconsin and Iowa both actually lose a higher percentage of their populations to Illinois than vice versa, and specifically Chicago, Cook County, and the collar counties — where taxes are highest in the state. He argued that tax policy has little if any effect on where people choose to live.

“There is only one tax in the entire tool kit that can respond to this — and that’s the income tax. … We need this tool in the kit.”

Ralph Martire on a progressive Illinois income tax (One Illinois/Ted Cox)

Martire pointed to Kansas and Minnesota. Kansas, he said, had cut taxes for top earners expecting to see a “trickle down” effect, only to see tax revenue precipitously decline, causing problems across the state, especially in education. Minnesota, by contrast, raised its top tax rate and invested in infrastructure and education and enjoyed years of sustained economic growth.

“This is all fun with numbers,” said Proft, whose flourishes were mainly rhetorical. Referring to Martire at one point as “Paul Krugman,” The New York Times economic columnist, and to his center as a “union-funded tax and budget accountability shop,” he derided what he called “Ralph’s back-of-the-envelope math.”

“I don’t want you to trust my numbers, and I sure don’t want you to trust his numbers,” Martire said, suggesting that voters consult the Federation of Tax Administrators, which has found that — with all forms of taxation combined — Illinois ranked right below the middle, 27th in the nation for overall tax burden.

Martire pointed out that the “fair tax” proposed by Gov. Pritzker would only raise the income tax on the top 3 percent of earners — which is where the money is now, given the growth they’ve enjoyed over the past decades. He said the problem was not in state spending. Martire cited figures that 97 percent of state spending goes to education, health care, social services, and public safety, and that total spending in those areas of $27.1 billion was actually down from a decade ago.

Proft argued that, given the state’s combined debt of $250 billion, much of it in pension obligations, it was inevitable that a graduated income tax would be used against middle-class residents as well, saying, “The tax hikers will come for middle-income families.”

Martire advised the reamortization of pension funds to smooth the way for getting them adequately funded — with the help of increased revenues from a progressive income tax. He pointed out that the state’s unfunded pensions were actually brought on in part by the flat tax, as politicians afraid to raise taxes on everyone to balance the budget borrowed instead from pension funds without adequate plans to repay those funds.

“Our tax policy is largely why we have an underfunded pension obligation,” he said.

When he pointed out that Illinois is one of just three states that impose an income tax that don’t tax retirement income, Proft suggested that would be where politicians would go next.

Referring to the “rapaciousness of government,” Proft charged that politicians — especially the state’s Democratic politicians — can’t be trusted with additional taxes of any sort. He said the state’s underfunded pensions are “not a tax-policy problem. It is a promise problem — overpromising benefit levels that we cannot sustain.

“What Illinois really has is a problem with politicians who are far too generous with other people’s money and property,” he added. “Political power, not economic vitality, is their endgame.” He called the “fair tax” a “fraud.”

Martire charged that Illinois was last in the nation in the percentage of state funding in public education, and that under persistent cuts to higher education over the last two decades the percentage of state spending weighed against college tuition and fees at state universities had flip-flopped, from the state covering 74 percent of college costs to tuition and fees now covering 70 percent. A progressive income tax, he stated, would sustain the gains in education funding across the board that the state has made in the last two years.

“Is this the only thing we need to do to fix our state’s fiscal problem? No, no,” Martire said. But, calling it “a crucial moment in time,” he stated that the state would be much better off joining the majority of other states — as well as the federal government — in assessing a graduated income tax.